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US and China sign Phase One of trade deal, easing tensions

Following a trade war that hand been ongoing for nearly two years, the US and China have finally signed an agreement that will help address economic pressure.

This trade agreement represents Phase One of the deal, with further phases expected to further ease pressure However, no set dates or deal conditions have been disclosed yet, so Phase Two remains up in the air for now As part of the deal, both countries will offer compromises from their end

Following a trade war that hand been ongoing for nearly two years, and following multiple truce discussions and attempts to de-escalate the war that had impacted both US and Chinese consumers, the two superpowers finally came to an agreement, signing Phase One of trade deal that will one day put this whole controversy behind them. 

Signing the trade deal

In essence, the Phase One agreement will offer a compromise to meet the demands of both nations. 

The US cancelled tariffs initially set to take effect back in December last month. It also agreed to cut duties on $120 billion in products to 7.5%. 

As for China, it will invest $200 billion in US imports over a two-year period from January 1, 2020 through December 31, 2021. These products mainly include “manufactured goods, agricultural goods, energy products, and services identified,” as per the official agreement

The Trump administration, however, will leave tariffs on the remaining $250 billion of goods unchanged. In total, tariffs will remain in effect on $370 billion of Chinese products.  

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When can we see a Phase Two agreement?

While both parties showed hopefulness regarding the future of trade between them, no details were given about when we could expect a Phase Two agreement, with a lot of conjecture going around. 

Treasury Secretary Steven Mnuchin told CNBC that a second phase of the agreement that the U.S. hopes to strike could include more tariff relief. 

“Just as in this deal there were certain rollbacks, in phase two there will be additional rollbacks,” he continued. “It’s really just a question of — and we’ve said before — phase two may be 2A, 2B, 2C. We’ll see.”

However, some skepticism about Phase Two still lingers. 

“We can’t expect that China-US trade friction will disappear simply because of signing a deal,” a source close to the Ministry of Commerce told the Global Times, a tabloid under the People’s Daily, which is the official newspaper of the Communist Party of China, as reported by CNBC

Recap: US and China to sign Phase 1 agreement tomorrow, de-escalate trade war 

Why did the trade war start in the first place, and what has the cost been?

US President Donald Trump has long disapproved of Chinese trade practices, irked mostly by alleged intellectual property theft practices by China. 

Over the course of nearly two years, the two nations were locked into a tit-for-tat trade conflict, with both sides escalating tariffs and economic pressure in sequential retaliation. In turn, both US and Chinese companies and consumers paid the cost, and will continue to do so until a full resolution is reached, which could take months, if not years. 

“A report from Moody’s Analytics says that the trade war with China, which started in early 2018, cost 300,000 jobs through September, based on an economic simulation,” reported CNN

As for China, the fallout has been similarly significant. 

The East Asian nation’s economic growth slowed to 6.2% in Q2 of 2019, its weakest pace in at least 27 years, as demand at home and abroad faltered in the face of mounting U.S. trade pressure, CNBC reported last summer

Victor Shih, a political economist at the University of California, San Diego, who studies the Chinese economy, says that China exports more goods to the U.S. than to any other country in the world, and that those exports have dropped by more than 12% in 2019 alone, as reported by NPR

Read: US equities unmoved by US-China trade deal