On Wednesday, January 15, President Trump and Chinese Vice Premier Liu He signed a “Phase One” trade deal in Washington. The signing of this deal followed over eighteen months of an escalating trade war between the world’s two largest economies, which has hurt global markets and has proven to be detrimental to the growth of both nations.
The 86-page agreement aims to arrive at peace in the trade war and resume US-China economic dialogues. As outlined in the deal, the US will cut some tariffs on Chinese goods in exchange for Chinese pledges to purchase more of American farm, energy and manufactured goods. China is also obligated to address some U.S. complaints about intellectual property practices, and make a stronger effort to curb both cyber theft and distribution of pirated goods. Similarly, China has agreed to withhold from pressuring American companies to share technology with local joint-venture partners, and to discourage the Chinese government from supporting Chinese firms that strategically compete with US companies in technology.
Additionally, China has agreed to spend $200 billion on US goods, in an attempt to close the trade disparity between the two countries. Included in the $200 billion expenditure is $40 billion in agriculture, the majority of which consists of the purchase of wheat, soy, and pork, which were among the US exports most affected by the trade war. While this has the potential to benefit the United States, officials predict that it will be hard for China to increase their imports from the US by so much without subsequently reducing their imports from other nations, and thus this may not negatively impact on China’s total trade balance.
Finally, the phase one trade deal holds Beijing in a contract that prevents purposeful currency fluctuation in order to gain economic advantages. It is important to note that the US intends to hold China accountable by requiring Beijing to present an action plan dealing with its intentions to meet agreements within thirty days of it going into effect. President Xi Jinping of China declared the deal “good for China, the U.S. and the whole world,” as it shows the two counties’ ability to work together despite their differences.
As for the United States, the government is set to lift tariffs on $120 billion in Chinese products, and reduce tariffs from 15% to 7.5% for $120 billion of Chinese imports. This reduction is expected to relieve some Chinese manufacturers, especially in the toy industry, that have suffered from US tariffs. In addition, tariffs that were scheduled to go into effect on December 15 on nearly $160 billion worth of Chinese goods, including cell phones, laptop computers, toys and clothing, have been suspended indefinitely. China’s retaliatory December 15 tariffs, including a 25% tariff on US-made autos, have also been suspended.
Although the deal addresses a narrow range of issues, it does very little to prevent Chinese hacking of US government data, a concern of many US authorities. Furthermore, it does not require the Chinese government to cap state subsidies, which currently allow Chinese companies to grow internationally at exponential rates, and present detrimental effects on US companies. While administrations say these issues will be resolved in phase two negotiations of the deal, it is unclear when this second phase will occur.
Despite the deal being generally well received by many American business groups and Chinese media, Craig Allen, head of the US-China Business Council, stated that “[t]he work isn’t done yet. The phase-one agreement should be swiftly followed by continued phase-two negotiations on remaining issues.”
By addressing topics such as trade and unlawful cyber sales, the deal is certainly a step in the right direction. However, as it still fails to address many pressing concerns and it is unclear when the majority of these concerns will be resolved, it is crucial for both sides to begin negotiating for a second phase as soon as possible.
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