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U.S., China tiptoe around holes in new trade agreement

23 Comments
By Jeff Mason and Andrea Shalal

The United States and China signed an initial trade deal on Wednesday that will roll back some tariffs and boost Chinese purchases of U.S. products, defusing an 18-month row between the world's two largest economies but leaving a number of sore spots unresolved.

Beijing and Washington touted the "Phase 1" agreement as a step forward after months of start-stop talks, and investors greeted the news with relief. But there also was skepticism the U.S.-Sino trade relationship was now firmly on the mend.

The deal fails to address structural economic issues that led to the trade conflict, doesn't fully eliminate the tariffs that have slowed the global economy, and sets hard-to-achieve purchase targets, analysts and industry leaders said.

While acknowledging the need for further negotiations with China to solve a host of other problems, U.S. President Donald Trump hailed the agreement as a win for the U.S. economy and his administration's trade policies.

"Together, we are righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers and families," Trump said in rambling remarks at the White House alongside U.S. and Chinese officials.

Chinese Vice Premier Liu He read a letter from President Xi Jinping in which the Chinese leader praised the deal as a sign the two countries could resolve their differences with dialogue.

The centerpiece of the deal is a pledge by China to purchase at least an additional $200 billion worth of U.S. farm products and other goods and services over two years, over a baseline of$186 billion in purchases in 2017, the White House said.

Commitments include $54 billion in additional energy purchases, $78 billion in additional manufacturing purchases,$32 billion more in farm products, and $38 billion in services, according to a deal document released by the White House.

Liu said Chinese companies would buy $40 billion in U.S. agricultural products annually over the next two years "based on market conditions." Beijing had balked at committing to buy set amounts of U.S. farm goods earlier, and has inked new soybean contracts with Brazil since the trade war started.

Key world stock market indexes climbed to new records on hopes the deal would reduce tensions, but oil prices slid on doubts the pact will spur world economic growth and boost crude demand.

Soybean futures, which traded 0.4% lower throughout much of the deal signing ceremony, sank even further after Liu's remarks, a sign that farmers and traders were dubious about the purchase goals.

The deal doesn't end retaliatory tariffs on American farm exports, makes farmers "increasingly reliant" on Chinese state-controlled purchases, and doesn't address "big structural changes," Michelle Erickson-Jones, a wheat farmer and spokeswoman for Farmers for Free Trade, said in a statement.

Trump and his economic advisers had pledged to attack Beijing's long-standing practice of propping up state-owned companies, and flooding international markets with low-priced goods as the trade war heated up.

Although the deal could be a boost to U.S. farmers, automakers and heavy equipment manufacturers, some analysts question China's ability to divert imports from other trading partners to the United States.

"I find a radical shift in Chinese spending unlikely. I have low expectations for meeting stated goals," said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis."But I do think the whole negotiation has moved the football forward for both the U.S. and China."

Trump, who has embraced an "America First" policy aimed at rebalancing global trade in favor of U.S. companies and workers, said China had pledged action to confront the problem of pirated or counterfeited goods, and that the Phase 1 deal included strong protection of intellectual property rights.

Earlier, top White House economic adviser Larry Kudlow told Fox News the agreement would add 0.5 percentage point to U.S. gross domestic product growth in both 2020 and 2021.

Aviation industry sources said Boeing was expected to win a major order for wide-body jets from China, including its 787 or 777-9 models, or a mixture of both. Such a deal could ease pressure on the 787 Dreamliner, which has suffered from a broad downturn in demand for large jets, forcing the planemaker to trim production late last year.

The Phase 1 deal, reached in December, canceled planned U.S. tariffs on Chinese-made cellphones, toys and laptop computers and halved the tariff rate to 7.5% on about $120 billion worth of other Chinese goods, including flat panel televisions, Bluetooth headphones and footwear.

But it will leave in place 25% tariffs on a vast, $250 billion array of Chinese industrial goods and components used by U.S. manufacturers, and China's retaliatory tariffs on over $100 billion in U.S. goods.

Market turmoil and reduced investment tied to the trade war cut global growth in 2019 to its lowest rate since the 2008-2009 financial crisis, the International Monetary Fund said in October.

Tariffs on Chinese imports have cost U.S. companies $46 billion. Evidence is mounting that tariffs have raised input costs for U.S. manufacturers, eroding their competitiveness.

Diesel engine maker Cummins Inc said on Tuesday that the deal will leave it paying $150 million in tariffs for engines and castings that it produces in China. It urged the parties to take steps to eliminate all the tariffs.

Trump, who has been touting the Phase 1 deal as a pillar of his 2020 re-election campaign, said he would agree to remove the remaining tariffs once the two sides had negotiated a "Phase 2" agreement. He added that those negotiations would start soon.

"They will all come off as soon as we finish Phase 2," said Trump, who added that he would visit China in the not-too-distant future.

© (c) Copyright Thomson Reuters 2020.

©2020 GPlusMedia Inc.

23 Comments
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I was skeptical that this trade deal contained clear wording about Chinese purchase commitments, but unless I’m missing something it seems to.

See here: https://int.nyt.com/data/documenthelper/6667-us-china-trade-deal/b8ef0d1826ca2b48f121/optimized/full.pdf

It says China “shall ensure” that it purchases an additional $200 billion of American goods and services in 2020 and 2021 compared to the “2017 baseline.”  The baseline is not spelled out, so leaves a bit of wiggle room. But still, If the Chinese follow through, US exports to China nearly double as compared with the trend line from 2010-2017. Some of that doubling is due to the flattening of the growth line because of Trump's Tade War. Some, but a good amount is from the new deal just inked.

Was it worht it? Well, depends on who you are: the average American family paid over $1000 the past two years in higher prices because of the trade war. That's quite a lot to the average family income. Not that much for the rich.

So, once again, yeah, it was worth it if you are rich and can afford higher products.

0 ( +0 / -0 )

Black Sabbath- any thoughts on if other trading blocks (really thinking of EU) will be leveraging this to improve their trading with China? I have mentioned on this board before that if Trump was any kind of a diplomat, he could have had some additional pressure since everyone is getting hosed by China's trade practices. (Not to mention, any country that has a moon and mars mission laid out is certainly not a "developing country" in the WTO.)

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U.S. President Donald Trump hailed the agreement as a win for the U.S. economy and his administration's trade policies.

Who knows whether it's a win. It's an election year so of course Trump's going to pat himself on the back, which is expected from a narcissist.

Does anyone know how this iteration of the trade deal affects the different arrangements Trump/Ivanka/Jared Inc. have made with Chinese Communist Party (CCP) leaders? Will they need to shift some of their manufacturing to one of their other facilities in Mexico, Bangladesh or elsewhere? Wasn't one of Trump's campaign promises (I know, Trump 'promises' a lot but isn't afraid to flip-flop, lie and cave) that he was going to bring jobs back to the US? Another porkie?

0 ( +0 / -0 )

Huge win, again, for the Trump administration and the working class in the US.

-4 ( +0 / -4 )

OnTheTrail

As far as I can tell, the deal is only about the US and China. It leaves Japan out in the cold.

1 ( +1 / -0 )

"The centerpiece of the deal is a pledge by China to purchase at least an additional $200 billion worth of U.S. farm products and other goods and services over two years" ......................................... This is what Democrats hate, and want to stop. They want China should become a super power and USA should go down to forth or fifth with heading to the last. Trump is the messiah of USA. no doubt.

-1 ( +2 / -3 )

@nonparty. They want China should become a super power

Said the Democrats in your head but nowhere else. Failed attempt at spreading another global alt right big lie.

1 ( +1 / -0 )

Black Sabath" Was it worht it? Well, depends on who you are: the average American family paid over $1000 the past two years in higher prices because of the trade war. That's quite a lot to the average family income. Not that much for the rich.""".................

Americans were paying an average of 7000 to 8000 USD to China every year to buy the Chinese products. No average american is paid salaries by Chinese govt. It is draining the cash deposits of each Americans. USA became a colony of China. Even an elementary child should know that once the piggy is finished nothing is there to hope for. Trump is the greatest and the bravest to deal to China. How many people know that our Silicon valley is 100% under the control of China? If you are not buying from China or complying to China you cannot start a business in USA silicon valley. Or you go and try. If you are Trump supporter they will kick you out in a day. I am taking about USA Silicon valley.

-2 ( +1 / -3 )

Who knows whether it's a win. It's an election year so of course Trump's going to pat himself on the back, which is expected from a narcissist. 

Seems like liberals are routing for China constantly, how sad.

*Does anyone know how this iteration of the trade deal affects the different arrangements Trump/Ivanka/Jared Inc. have made with Chinese Communist Party (CCP) leaders? Will they need to shift some of their manufacturing to one of their other facilities in Mexico, Bangladesh or elsewhere? *

Whoa, slow down, slow down, this is “phase one” of the deal, it’s called that for a reason, one step at a time.

Wasn't one of Trump's campaign promises (I know, Trump 'promises' a lot but isn't afraid to flip-flop, lie and cave) that he was going to bring jobs back to the US? Another porkie?

I really hope Dems don’t try to even touch that, the markets and jobs report says something totally different, the Dems can in no way or fashion even remotely touch this President when it comes to the economy, this is why they had to go the impeachment route.

-2 ( +1 / -3 )

@bas4fSeems like liberals are routing for China constantly, how sad.

Said the liberals inside your head but nowhere else. In the 'minds' of some of Trump's most extreme partisan extremists anyone who questions Trump falls into the category of what they call 'liberal', maybe 'Democrat', maybe 'socialist', words to them which mean 'anyone who doesn't blindly follow Trump and/or Putin'. It's a variation on Bush 43's 'You're for us or you're for the terrorists', i.e. the age old depot's it's either A or Z, nothing in between. It's a dialogue killer used by the alt right when they can't offer reasonable defenses for their lame beliefs.

0 ( +0 / -0 )

Until the farmers are taken off of the taxpayer funded bailouts, I won’t believe one word regarding Trump’s “ trade deal”.

He’s cried “ wolf” one too many times to be convincing.

Now that Republicans have abandoned their free market principles, the only remaining vestige of the Grand Old Party is their opposition to women’s reproductive rights.

Good job, Donald.

0 ( +1 / -1 )

The deal fails to address structural economic issues that led to the trade conflict, doesn't fully eliminate the tariffs that have slowed the global economy, and sets hard-to-achieve purchase targets, analysts and industry leaders said.

Signature Trump.

1 ( +1 / -0 )

I can't see how this is even considered a deal. It's a bilateral adjustment andcrearrangement may be, but not a deal.

Agri products will be produced for global consumption. If China have to buy from USA, they will dump contracts from Brazil, depressing global prices, and it's all back to the beginning like before the deal.

Meanwhile, China will go on enjoying structural advantages, eg state subsidies, state sanction IP theft, state sanctioned trademark theft, market manipulation....

USA like the rest of the world, left it until it's too late, and now expects the situation to be fixed without pain, ie for China to roll over and fix it for everyone. Not going to happen.

0 ( +0 / -0 )

The Boeing 787 is a great long haul airframe (imho, market leader), but Boeing screwed up its marketing. With focus (now that they have new leadership), and better effort on marketing, it should have airlines queuing up to buy it.

The Chinese would buy the 787 regardless of any trade friction.

0 ( +0 / -0 )

Interesting.....

https://www.bbc.com/news/business-51025464

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Who cares if something is “hard to achieve”. That’s a good thing when it is talking about China agreeing in writing to do said hard thing.

this is a total success for a Phase I agreement. Liberals claimed even this would never happen.

-1 ( +1 / -2 )

This is not a surprising news.

Washingjing and Beijington are actually silent partners.

No wonder the USA is making it very difficult for 'friend' and 'ally' and 'like -minded fellow democracy' ROC-Taiwan sign a FTA .

1 ( +1 / -0 )

Until the farmers are taken off of the taxpayer funded bailouts, I won’t believe one word regarding Trump’s “ trade deal”.

So what have the Dems done to help the farmers? Oh, that’s right, nothing.

He’s cried “ wolf” one too many times to be convincing. 

Ok, and the Dems solution is...besides impeachment, what is the extent of their power to fix this?

Now that Republicans have abandoned their free market principles, the only remaining vestige of the Grand Old Party is their opposition to women’s reproductive rights.

What? Dear lord....lol

-1 ( +0 / -1 )

Hey China,

Sounds like your signing another deal similar to the humiliation of Japan with the Plaza Accord in the late 1980.

If you truly look at the deal it's a win/win/win/win for America all the way forward and back they get everything in their favor.

They also left phase 2 deal open... So the list of demands can continue next year too.

Guess the centuries of humiliation isn't in the past after all.

0 ( +1 / -1 )

It's sad how the US made itself so dependent on China.

0 ( +0 / -0 )

It's sad how the US made itself so dependent on China.

Well, Trump is trying to change that, but of course for some of us everything that orangeman does is bad, so he´ll get bashed no matter what.

-1 ( +0 / -1 )

Well, Trump is trying to change that, but of course for some of us everything that orangeman does is bad, so he´ll get bashed no matter what.

No, Donny isn’t trying to change the US’ dependence on China. Of course, for some of us, everything Donny does is great, so you’ll cheer him no matter what.

0 ( +0 / -0 )

Paper is cheap - either country can put any figures down on paper

(Like China buying double to $40 billion the agricultural imports from the US in 24 months - but (a) US farmers don't have the capacity to ramp-up produce $40 billion worth of goods in 24 months because they've never produced at that level ever, and (b) like hell China is gonna do that)

What matters is what they actually do

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