United States and China sign 'phase one' deal

Andrew Cummings
January 15, 2020

The U.S. futures are indicating a flat open on Wednesday as traders await the much-anticipated Phase One Trade Deal.

The centrepiece of the deal is a pledge by China to purchase at least an additional $200 billion of USA farm products and other goods and services over two years, over a baseline of $186 billion in purchases in 2017.

"This deal does not end retaliatory tariffs on American farm exports, makes American farmers increasingly reliant on Chinese state-controlled purchases and doesn't address the big structural changes the trade war was predicated on achieving".

- The Federal Reserve Bank of NY said on Tuesday it will continue to inject liquidity into the overnight lending markets for cash until at least mid-February while slightly reducing offerings on longer term loans.

In a letter to the President on Monday, Chuck Shumer, the top Senate Democrat, complained that the deal - reported to be only 86 pages long - could "send a signal to Chinese negotiators that the United States can be steamrolled".

Mr Trump has described the deal as a "phase one" agreement.

'The tariffs will stay in place until there is a phase two.

Trump also thanked Chinese leader Xi Jinping and said he would visit China in "the not-too-distant future".

While the deal falls short of the comprehensive agreement that Mr. Trump had sought when he first confronted Beijing over unfair trade practices, it does include a promise by China to stop the forced transfer of technologies from USA companies doing business there. If the President gets a Phase Two quickly, he'll consider releasing tariffs as part of Phase Two.

And even the achievements in the deal take the relationship back to where it was before Trump took office, restoring elements he scrapped.

- Mnuchin also said, the first phase of a trade agreement will be fully enforceable, including a pledge by China to refrain from manipulating its currency.

After announcing the deal on December 13, the United States canceled a damaging round of new tariffs that were due to kick in two days later and also promised to slash in half the 15 percent tariffs on $120 billion imposed September 1 on consumer goods like clothing.

After announcing the deal Dec 13, the United States canceled a damaging round of new tariffs that were due to kick in Dec 15, and promised to slash in half the 15 percent tariffs on $120 billion imposed Sept 1, on consumer goods like clothing.

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

The agreement includes additional protections for intellectual property and addresses financial services and foreign exchange while including a provision for dispute resolution, which Mnuchin said will be binding for the first time.

Mr. Schumer, who formalized his complaints in a letter to Mr. Trump on Monday, said Mr. Trump gave away his main form of leverage by easing off tariffs for "vague promises of reform".

"It has nothing to do with the election or anything else".

Trump has repeatedly touted the trade pact as a boon for American farmers, saying China will buy $40 to $50 billion in agricultural goods.

Soybeans exports to China plunged to just $3 billion from more than $12 billion in 2017 and the Trump administration paid out $28 billion in aid to farmers in the last two years.

But many economists question whether USA farmers have the capacity to meet that demand.

The label was removed earlier this week.

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