After nearly two years of terse exchanges, accusations and mounting tariffs, the US and China will finally sign an agreement tomorrow, Phase One of the eventual full de-escalation of the ongoing trade war.
As we wait for that, let’s explore what this agreement really means in the grand scheme of things.
Both countries finally come to an agreement
On the 13th of December of last year, it was announced that the two disgruntled nations had finally come to acceptable terms with one another, and that an accord would soon be signed. This had been predicted to happen much earlier, but never did come to pass, with the trade war regressing and the US imposing more tariffs.
“The United States and China have reached an historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange,” the US trade representative’s office had said at the time in a written statement.
“Importantly, the agreement establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement.”
Myron Brilliant, the US Chamber of Commerce’s Executive Vice President, told a media briefings in Beijing that there is “clearly a sigh of relief from both sides” with the agreement, and that the depth of the Phase 1 was more positive than initially thought, as per Reuters.
“Implementation of Phase 1 will be important to building trust and certainty, building off the success of the negotiation,” said Brilliant, who said he had been briefed on the text of the accord but not seen it.
But while the Phase 1 accord “stops the bleeding”, he said. “at the same time it’s important that the two sides demonstrate a commitment to moving forward on the Phase 2 negotiations”.
Even with Phase 1 eventually signed, the US will be maintaining 25% tariffs on approximately $250 billion of Chinese imports, along with 7.5% on approximately $120 billion of Chinese imports.
China, on the other hand, had threatened to introduce tariffs of 5 and 10% on selected US goods, but pulled back on the decision when the both parties agreed to sign the Phase 1 accord, according to the South China Morning Post (SCMP). That’s not including the multiple tariffs they imposed themselves on the US in retaliation, though these have been much less severe than President Trump’s rates.
While President Trump will slightly cut back on his tariffs and cancelled Dec 15 sanctions, China is expected to return the favor in a different manner.
“The Phase One agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years,” the US statement said.
This week, new details surfaced regarding the type of goods China will buy, as well as the exact amount.
“The trade deal to be signed this week will include pledges by China to buy $200 billion of US goods over two years in four industries,” according to SCMP, citing US sources.
“The target for manufactured goods purchases will be the largest, worth around $75 billion. China will also promise to buy $50 billion worth of energy, $40 billion in agriculture and $35 billion to $40 billion in services,” the sources confirmed.
It also comes as a relief that the US has also removed its label of China as a “currency manipulator,” after changes in the Chinese Yuan’s value seen as a move to undermine US tariffs.
“The US said it made the change because China had agreed to refrain from devaluing its currency to make its own goods cheaper for foreign buyers,” the BBC explained.
As for Phase 2, we could learn more tomorrow, as more intense negotiations will be required to come to a second agreement.