President Donald Trump recently signed the “phase one” trade deal between the United States and China. The move serves as a temporary break from the biggest trade war, which began in 2018.
The trade war between the world’s two largest economies has harmed both economies, including American farmers. U.S. farms lost billions of dollars of exports to China, the biggest buyer of U.S. agricultural products, as the trade war ramped up.
In retaliation to the Trump administration’s tariffs, the Chinese government reduced its purchases of U.S. agricultural products from more than $20 billion in 2017 to $9.2 billion in 2018.
To ease the pains of American farmers, the Trump administration created a $28 billion bailout program. However, farmers criticized the bailout as a “band-aid” to the problem. They demanded a solution, a free trade agreement with China—their primary export market.
Many believe that the signing of the U.S.-China “phase one” trade deal helps alleviate investors’ and farmers’ concerns. It means that the world’s two largest economies will stop their escalating trade war and will continue working together to resolve their disagreements.
Key Provisions of the U.S.-China Phase One Trade Deal
Under the agreement, China agreed to increase imports of American goods and services by at least $200 billion over the next two years. The amount included an average of at least $40 to $50 billion purchases of American agricultural and seafood products annually.
China promised to strengthen protections for American intellectual property (IP) by expanding enforcement against trade secret theft, pirated and counterfeit goods and more. In addition, China agreed to end its practice of forcing foreign companies to transfer their technology to Chinese companies to gain market access.
China also made strong commitments on currency practices regarding devaluations & exchange rates and eliminating barriers that reduced the competitiveness of U.S. companies offering financial services in Chinese markets.
The United States agreed to reduce tariffs on $112 billion worth of Chinese goods from 15% to 7.5%. Last month, the Trump administration promised that it will not impose tariffs on $160 billion worth of Chinese imports including cellphones and laptops as part of the phase one deal.
U.S. Agriculture Secretary: U.S. Farmers will no longer need trade-related assistance
The White House stated that the phase one trade deal will be an “incredible boost for American businesses, farmers, manufacturers, and innovators.” It will also “rebalance” the trade partnership between the United States and China.
“This is an unbelievable deal for the United States. And, ultimately, it’s a great deal for both countries…We mark more than just an agreement. We mark a sea change in international trade. At long last, Americans have a government that puts them first,” said Trump during the signing ceremony of the phase one deal.
On the other hand, in a letter read out to Trump, Chinese President Xi Jinping said the phase one agreement proves that the U.S. and China could work out their differences. He added that the agreement is good for both countries and the world.
Meanwhile, U.S. Agriculture Secretary, Sonny Purdue expressed confidence that American farmers will no longer need a bailout from the government this year. He cited the reason that China will start buying more U.S. agricultural products as part of the initial trade agreement.
In his remarks at the annual convention of the American Farm Bureau Federation, Purdue said he believes China will meet its $40 billion in agricultural purchase agreements.
He added that U.S. farmers will immediately receive the third portion of a $16 billion bailout package that was announced in May. However, he stressed that they should not expect any financial aid this year.
In an interview with Fox Business’ Dagen McDowell, Purdue commented, “there’s a lot of cumulative trade potential out there and our farmers are ready to go. They love to grow things. They’d rather have that trade than aid. And they’re ready, raring to go.”
Some See China’s Purchase Pledge as “Unrealistic”
Some market observers suggested that China can’t meet its commitment to purchase at least $40 billion in U.S. agricultural products over the next two years.
First, they cited the fact that China’s 2019 economic growth rate was 6.1%, the slowest in three decades. The International Monetary Fund (IMF) predicted that the country’s economy will see a decline to 6% in 2020. The World Bank forecasted the Chinese economy to slow down to 5.9%.
Second, market observers noted that China has a history of not fulfilling similar commitments in the past.
Third, they are concerned that purchase agreement likely violates the basic rules of the World Trade Organization (WTO), which prohibits discriminatory treatment between countries. Under the deal, it is obvious that China is favoring U.S. imports over other WTO members.
The phase one trade deal “may be doomed from the start” according to Chad P. Bown of the Peterson Institute for International Economics (PIIE). He cited the fact that many experts view “China’s promised purchases are bound to fall short.”
Bown explained Beijing’s “purchase pledge reflects an alternative managed trade approach to expanding US exports. The real problem with managed trade is that it may divert, rather than expand, international commerce. For example, China could purchase more American soybeans by cutting back on imports of oilseeds from Brazil. At the same time, Beijing may choose to import significantly less of the tens of billions of dollars of American exports that are not covered by the legal agreement. In the end, mismanaging trade could hurt unwitting American companies as well as third countries.”
Article By: Marivic Cabural