China and America Phase-One Trade Negotiations

Last week there have been lots of media coverage concerning the final details about the USA and China Trade War and the 86-page Phase One Agreement.  

The phase-one deal has been announced and published but has not been signed by either party yet.  It is still unknown what is and what isn’t in the deal.  The US and China are expected to sign this agreement in January, as they are still working out the translation and the final details.  

Chinese officials from left Ning Jizhe, Vice Chairman of National Development and Reform Commission, Liao Min, Deputy Director of the Office of the Central Commission for Financial and Economic Affairs and Vice Minister of Finance, Zheng Zeguang, Vice Minister of Foreign Affairs attend a press conference on the trade deal with the United States in Beijing on Friday, Dec. 13, 2019. (AP Photo/Ng Han Guan)

Jim O’Sullivan, chief US macro strategist at TD Securities commented: “The [‘phase one’] trade deal is positive for the outlook, relative to continued trade war escalation, but there is still a lot of uncertainty.”

Phase-One Deal

Here’s what phase-one includes, according to US officials and others familiar with the agreement:

  • The United States canceled an additional round of tariffs on nearly $160 billion of Chinese on footwear, apparel, and accessories which had been set to take effect last Sunday.
  • The United States has agreed to cut tariffs on $120 billion worth of Chinese imports to 7.5% from 15% (in previous agreement). Earlier tariffs of 25% on $250 billion in Chinese imports remain in place.
  • China to buy more from the US over the next two years, raising the value of its total imports to $200 billion.
  • Purchases of US agriculture goods are expected to rise from US $40 billion to US $50 billion.  
  • China to pursue high-quality economic development, improve its business environment, and expand market access for foreign companies.  
  • China is said to have agreed to make structural changes to how it deals with intellectual property rights. This will end the practice of forcing American companies to reveal their technology to access the Chinese market. However, details here remain unclear.

Industry and Government comments

FDRA President & CEO Matt Priest made the following statement “We welcome the President’s announcement to eliminate plans to increase tariffs on Sunday and reduce previously implemented tariffs as part of the phase one trade deal.

Tariffs are hidden taxes paid by US individuals and families, and hitting these hardworking individuals and families with a massive tax increase during the holiday season would stifle economic growth and threaten jobs in our industry. 

Footwear already faces a US 3 billion dollar tariff burden every year. As negotiations continue, we urge the Administration to further eliminate high footwear tariffs that are hurting American footwear companies and consumers”.

Robert Lighthizer, US Trade Representative mentioned “Ultimately, whether these whole agreements work is going to be determined by who’s making the decisions in China, not in the United States.  If the hard-liners are making the decisions, we’re going to get one outcome; if the reformers are making the decisions – which is what we hope – then we’re going to get another outcome.”

To ensure that China keeps its commitments, Lighthizer said the US government would periodically review China’s actions. If China violates the terms of the agreement, the United States would “take a proportionate reaction”, such as potentially bringing back any of the tariffs.

Lighthizer also added that phase one of the deal would not solve all of the problems between the United States and China. Integration between the two nations will “take years”.

Summary

It is great to see an agreement by the largest trading partners to help the Global economies that were looming over a recision if this trade war continued.

This is going beyond, the enacting of the Hong Kong Human Rights Act that Trump agreed to a few weeks ago.

Trump is looking to resolve trade war issues, bringing closure to the USMCA and now the phase-one US, China agreement. Trump is already talking about shifting gears to “phase-two” immediately. That would put concerns about tensions flaring up again back on the table.

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