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What happened to the ‘Historic’ phase-one US China trade agreement?

November 20, 2019

November 20, 2019

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What happened to the ‘Historic’ phase-one US China trade agreement?

The US China trade war has been going on for a year and a half, but a Trump tweet sparked hope last month announcing that the United States and China were about to sign an ‘historic’ trade agreement. The phase-one deal was supposed to represent 60% of an overall long-term agreement which would pause tariff escalations as well as address issues such as intellectual property and financial services. 

The US China trade war has been going on for a year and a half, but a Trump tweet sparked hope last month announcing that the United States and China were about to sign an ‘historic’ trade agreement. The phase-one deal was supposed to represent 60% of an overall long-term agreement which would pause tariff escalations as well as address issues such as intellectual property and financial services. 

Although some sources have confirmed both parties remain optimistic, three weeks have passed without further progress. 

The deal was supposed to be signed in Chile in mid-November but was postponed due to unrest in the host country. Just before Mr Trump’s announcement, a report said China is doubtful about reaching an agreement because of the US President’s ‘impulsive nature,’ begging the question when and if the deal is going to happen.

The terms of the phase-one deal included China purchasing US$40 to US$50 billion dollars worth of US agricultural goods and Washington easing tariffs on Chinese imports. 

Beijing wants Washington to roll-back tariffs on $360 billion of Chinese imports such as meat, electrical appliances and clothing, before signing the partial trade deal, including tariffs on about $110 billion of goods which began in September as well as the 25% tariff rate on about $250 billion of goods that was implemented last year. 

Whether or not Trump is really impulsive or has a plan in mind is not clear, but he does seem to be sending mixed signals. American tariffs on $360 billion worth of Chinese Goods remain unaltered at this point. 

“We’re taking in billions of dollars in tariff money from China,” Mr. Trump said on the 8th of November this year. “I like our situation very much. They want to make a deal much more than I do, but we could have a deal.”

Trump’s theatrical approach is hardly unexpected at this point not only in his negotiations with China but also with other economies. He has publicly threatened several countries with tariffs and aired the possibility that he might leave some trading partners behind, pressuring officials to make concessions they wouldn’t otherwise have agreed to. 

Trump and Xi Jinping have not rescheduled a meeting to ratify the phase-one deal and China is reluctant to pick up negotiations until their demands for tariff reductions are met.

Meanwhile, Washington has considered implementing an additional 15% tariff on $160 billion of goods which would go into effect on the 15th of December but whether or not it will happen is still unclear. Trump has also not yet revealed whether the 15% September tariffs will remain in effect or not. 

“By hyping-up expectations and setting unrealistic goals for the trade talks, Trump makes the prospects for any sort of trade deal with China more uncertain and volatile,” Eswar Prasad, a trade professor at Cornell, said. 

Many businesses around the world that rely on trade flows between the United States and China are vulnerable in the current political climate. Chinese economic growth is at its slowest rate in nearly three decades, while US manufacturing has slumped and Germany only just avoided a recession.

“It’s striking that in almost every corner of the world, geopolitical tensions are threatening to put the brakes on growth,” John Williams, the president of the Federal Reserve Bank of New York, said in a speech last week. “The uncertainty created by current events is no doubt having an effect on the economic conditions we’re experiencing today.” 

 

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