Signing Day – Details of Phase One Trade Deal

The Phase One trade deal signed on Wednesday includes pledges by China to buy US$200 billion of US goods over two years in four industries.

The president said the U.S. and China are “righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers, and families.” He added that the deal has “total and full enforceability.”

Steven Mnuchin told reporters in Washington “This is an enormous achievement for the president and the economic team.”

Stephen Vaughn, who helped oversee Trump’s trade policies as the general counsel and right-hand man to U.S. Trade Representative Robert Lighthizer said “It’s a major victory for the president. He has gotten China to make stronger commitments than it has made in previous agreements.”

USA Exports

The target for manufactured goods purchases will be the largest, worth around US$75 billion. China will also promise to buy US$50 billion worth of energy (liquefied natural gas, crude oil, and other refined products), US$40 billion in agriculture (oil seeds, meat, cereals, and cotton) and US$35 billion to US$40 billion in services (business travel, financial services, and insurance).

Trump insisted the agreement is “a transformative deal” and said it would benefit American farmers, manufacturers and other workers who have been hurt by China’s unfair trade practices.

China Terms

The United States removed China from a list of currency manipulators.  “In this context, Treasury has determined that China should no longer be designated as a currency manipulator at this time,” the US Treasury Department said.

China also secured some tariff relief, with Washington canceling tariffs that were due to come into force on December 15, and will half a 15 percent tariff on US$120 billion worth of Chinese goods. However, 25 percent of tariffs on US$250 billion worth of Chinese goods remain in place.

Regarding forced technology transfers, companies should be able to operate “without any force or pressure from the other Party to transfer their technology to persons of the other Party.” Technology transfers “must be based on market terms that are voluntary and reflect the mutual agreement,”

“This is largely a deal on Chinese terms,” said Robert Daly, director of the Wilson Center’s Kissinger Institute on China and the United States, a non-profit research organization that seeks to promote better U.S.-China relations. “There is nothing we know about this deal that China wouldn’t like. And there is nothing we know about this deal that China probably wouldn’t have been willing to do some time ago.”

“In the face of severe and complex domestic and foreign situations and various risks and challenges, we have been able to move forward firmly,” Xi told party leaders last week.

Additional terms

The Phase One deal will contain an enforcement provision, through which the US will unilaterally be able to re-impose tariffs should China not hold to its commitments, including the purchase agreements.

White House trade adviser Peter Navarro said in an interview with US broadcaster NPR on Monday that the enforcement mechanism permits US trade representative Robert Lighthizer to re-impose tariffs within a 90-day period.

“The most important element of this deal is what didn’t happen: further tariffs,” says Gregory Daco, chief U.S. economist at Oxford Economics. “The risk of more tariffs isn’t going to materialize, and that’s the biggest gain for Americans.”

There were 200 invited guests in the East Room of the White House for the signing ceremony, with US President Donald Trump joining China’s 

Vice-Premier Liu He – who led China’s negotiating team throughout the prolonged trade talks – in signing the document.

Trump 2020

Trump claims a political victory as he faces an impeachment trial in the Senate and gears up for the November election.

A majority of Americans – 51% – for the first time credited Trump for having either “strongly” or “somewhat” helped the U.S. economy, according to results of a survey released last week by the Financial Times and the Peter G Peterson Foundation.

Conclusion

U.S. consumers won’t get much of a financial reprieve from the Phase One deal, economists say, because while the truce helps consumers avoid the pain of further tariffs, it doesn’t erase all the earlier ones.

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