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16 January 2020
ECONOMY

US and China sign phase one of the trade deal

The trade talks stretching back almost three years have roiled financial markets, cast a cloud of uncertainty over investment decisions and hurt growth in both nations.

President Donald Trump, right, and Liu He, China's Vice Premier, display the signed US-China 'phase-one' trade agreement/Bloomberg

by Bloomberg

The US and China signed the first phase of a broader trade pact amid persistent questions over whether US President Donald Trump’s efforts to rewrite the economic relationship with Beijing will ever go any further.

The deal commits China to do more to crack down on the theft of American technology and corporate secrets by its companies and state entities while outlining a $200 billion spending spree to try to close its trade imbalance with the US.

Additionally, the trade deal also binds Beijing to avoid currency manipulation to gain an advantage and includes an enforcement system to ensure promises are kept.

The deal does not address the US government’s claims such as China’s state-backed hacking of American companies and government institutions. The deal also does not require the Asian nation to reform the vast web of state subsidies that form the spine of its model of state capitalism and have helped fuel the rapid growth of Chinese companies to compete internationally.

The Trump administration said that many of those issues will be covered in the second phase of a deal, though when those talks will begin and how long they will take remains uncertain. In the meantime, the US is also set to maintain tariffs on roughly two-thirds of imports from China.

“As soon as this kicks in we’re starting phase two,” said US President Donald Trump.

“I will agree to take those tariffs off if we’re able to do phase two, otherwise we do not have any cards to negotiate with—they will all come off as soon as we finish phase two,” added Trump.

 “I hope the US side will treat fairly Chinese companies,” said Liu He, the Chinese Vice Premier.

US Trade Representative Robert Lighthizer told reporters ahead of the signing of the trade deal that the administration was focused on implementing the initial agreement in the short term and any further negotiations will only come after that, he said.

Officials also insist that they are harvesting significant commitments from Beijing that mean the phase one agreement will benefit US businesses and workers even if discussions never go any further.

The deal requires China to do more to stop the sale of pirated goods and to apply criminal penalties on anyone caught stealing commercial secrets. It also requires Beijing to deliver an action plan within 30 days of the deal taking effect on how it intends to meet its commitments.

Additionally, the US-China trade agreement also requires China to stop pressuring American companies investing in the country to share technology with local joint-venture partners. The agreement stipulates that the Chinese must stop supporting or directing the acquisition of overseas investment aimed at buying up technologies.

Other supporters of Trump’s trade policies insist that the initial deal goes a long way toward addressing the IP issues that were at the core of the case brought against China.

China has already moved to address some US complaints on IP. Over the past year, it has made a rapid-fire series of legal changes amid the negotiations to beef up protection. A new foreign investment law that took effect on January 2020 bans administrative agencies from forcing companies to transfer technological know-how as a cost of entry to the Chinese market.

The text of the deal specifies $77.7 billion in Chinese purchases of manufactured goods including aircraft, $32 billion in agricultural products, $52.4 billion in energy and $37.9 billion in services in the two years through December 2021.

Much of the attention has focused on whether US farm exports to China can reach the $40 billion to $50 billion annual level that Trump has promised, which would mean doubling the $24 billion in agriculture and related products it imported from the US in 2017 before the trade war began.

There are also questions over a Chinese commitment to buy an additional $50 billion in US oil and gas over two years and pledges to step up purchases of cars, planes and other manufactured goods.

 


RELATED STORIES: US President Donald Trump US-China trade deal Liu He phase one

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