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US-China ‘section one’ commerce deal in 5 factors

The US and China are set to end their long-running trade war and finalise the first stage of a deal between the world’s two most powerful economies. 

The “phase one” agreement will be formalised at a ceremony at the White House today, after months of confrontation “cast a cloud over global growth” and left “both countries fear[ing] the economic and financial fallout from escalating tensions”, reports the Financial Times.

So what does the trade deal actually say?

China is committing to buy American

The FT reports that the deal commits China to “making $200bn [£153.6bn] in additional purchases of US goods”.

US President Donald Trump is expected to describe this element of the agreement as a “major breakthrough”, says The Guardian, especially Beijing’s pledge to purchase “up to $50bn [£38.4bn] of US agricultural products per year”.

The New York Times reports that the deal provides China with greater access to American markets, in a boost for US producers.

It will not mean an end to tariffs

While Trump is expected to boast that the agreement proves his deal-making credentials, The Guardian reports that “the fizz is going flat, even before the corks fly out of the bottles”.

The White House has confirmed that tariffs imposed on China over the past 18 months will remain in place “until there is a Phase 2”. This means it is unlikely that any tariffs will be removed until after the November presidential election. 

Speaking to reporters before the signing, US Treasury Secretary Steven Mnuchin, said: “These tariffs will stay in place until there is a Phase 2. If the president gets a Phase 2 in place quickly, he’ll consider releasing tariffs as part of Phase 2.”

The New York Times says that the $360bn (£308bn) worth of tariffs will remain in place to “prevent China from violating the agreement”. 

China has pledged to clamp down on stealing

A major concern for US companies heading into the negotiations was the safeguarding of their corporate secrets. “Years of rampant piracy, trade secrets theft and discriminatory treatment left many American executives eager for a confrontation with Beijing,” reports The Washington Post.

The deal does go some way to reducing those worries, with the New York Times reporting that “China has promised to punish Chinese firms that infringe on or steal corporate trade secrets”.

China will also not direct Chinese companies to obtain “delicate foreign technologies” through acquisitions, reports the paper, a method US officials claim China has exploited to “leap to the forefront of advanced industries”.

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The deal will steady markets, but only a little

Speaking to the Financial Times, chief economist at New Jersey-based PGIM Fixed Income, Nathan Sheets, said that the deal will remove “some important clouds” from a market perspective, but added: “I would be doubtful this is enough for firms to restart investment”.

The caveat is based on the fact that neither US nor Chinese officials have offered any indication on the “timing or prospects” for a second phase of negotiations, the paper adds.

The Guardian echoes this, reporting that given the “long grind” required to negotiate the 80-page phase one deal, “investors fear that a comprehensive trade deal could take a long time to agree”.

This is a cooling, not an end, to US-China tensions

While the deal is a breakthrough in the trade war between the two economic superpowers, it “falls far short of a lasting peace”, according to the Financial Times. 

The paper notes that the “deeper strategic rivalry between the two powers” – accelerated under Donald Trump – will not be halted by the deal. These tensions centre on contentious issues such as “military matters and primacy in advanced technologies from 5G communications to artificial intelligence”, the paper says. 

The Guardian also reports that concerns still linger that China will renege on the deal. Ipek Ozkardeskaya, senior analyst at Swissquote Bank, told the paper that watching the deal is like “watching a live show in the theatre of the absurd”.

After the Trump administration revealed that no tariffs will be cut until after US presidential election in November, “the risk here is that the double-standard agreement could provide a weak basis for the future negotiations, impair the benefits, or even spoil the deal”, Ozkardeskaya said.

“The success of the deal hinges on whether China will follow through on its commitments on paper,” says the New York Times. “Something Trump administration officials and China hawks say it has failed to do in the past.”

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