US-China trade deal brings stability for now

US-China trade deal brings stability for now

Beijing says agreement is in line with its policy of opening the economy

Traders work at the New York Stock Exchange in front of a monitor showing a Chinese official discussing the trade deal with the United States on Friday. (AP Photo)
Traders work at the New York Stock Exchange in front of a monitor showing a Chinese official discussing the trade deal with the United States on Friday. (AP Photo)

China has put a positive spin on a first-phase trade agreement that turns down the temperature on a trade war it blames the United States for starting.

Chinese experts and news media joined government officials in saying the deal announced on Friday would reduce uncertainty for companies, at least in the short term. But they remained cautious, saying both sides will have to show a willingness to compromise to resolve the more fundamental differences between them.

“It at least stabilises the situation and lays a foundation for the next round of trade talks or cancelling additional tariffs in the future,” said Tu Xinquan, a professor at the University of International Business and Economics in Beijing. “I cannot predict what achievement can be made during the future talks.”

Reaction in the United States was also muted, with commentators saying they wanted to see more details.

Under the “Phase 1” agreement, both sides say they will reduce tariffs and China will buy more US farm products. Chinese officials said the nine-chapter text, which includes intellectual property, technology transfer, financial services and dispute settlement, has to undergo legal and translation review before it can be signed.

US Trade Representative Robert Lighthizer said he expected the pact would be signed in the first week of January and would take effect 30 days after that.

At a late night news conference in Beijing, timed to coincide with the US morning, Chinese officials said the United States would begin phasing out tariffs on Chinese imports, rather than continue to raise them. The deal was announced just two days before higher tariffs were set to kick in. China will make similar tariff cuts, the officials said, but they gave no details.

China portrayed the agreement as being in line with the opening up of its economy and the deepening of its economic reforms. Increased imports of high-quality products from the United States and elsewhere will “meet the growing needs of the people for a better life”, said Wang Shouwen, a deputy commerce minister and trade negotiator.

The Global Times, a state-owned newspaper known for its nationalistic views, called the agreement a new beginning. It pointed to stock market gains in recent days as word of a possible deal leaked.

“China and the US have been locked in a trade war for about 20 months and neither side could overwhelm the other to recklessly impose its own will on the other,” the newspaper said.

It added, though, that both countries are capable of prolonging the trade war, and that they must be willing to compromise if they want to resolve their differences through patient negotiations.

“Rome was not built in a day,” it wrote.

The following are details of the deal released by both sides:

TARIFFS

The United States will not proceed with 15% tariffs scheduled to go into effect on Sunday on nearly $160 billion worth of Chinese goods, including mobile phones, laptop computers, toys and clothing.

China cancelled its retaliatory tariffs due to take effect that same day, including a 25% tariff on US-made autos.

The US will cut by half the tariff rate it imposed on Sept 1 on a $120-billion list of Chinese goods, to 7.5%

US tariffs of 25% on $250 billion worth of Chinese goods will remain unchanged, providing US negotiating leverage for a second phase of negotiations next year.

TRADE DEFICIT

US officials say China agreed to increase purchases of American products and services by at least $200 billion over the next two years, with an expectation that the higher purchases will continue after that period.

The purchases include manufactured goods, agricultural goods, energy and services, and are expected to reduce the $419-billion US trade deficit with China, officials said. China bought $130 billion in US goods in 2017, before the trade war began, and $56 billion in services, US data show.

AGRICULTURE

China has committed to increase purchases of US agriculture products by $32 billion over two years. That would average an annual total of about $40 billion, compared to a baseline of $24 billion in 2017 before the trade war started.

President Trump has demanded that China buy $50 billion worth of American farm goods annually. Mr Lighthizer said China agreed to make its “best efforts” to increase its purchases by another $5 billion annually to get close $50 billion.

China has committed to reduce non-tariff barriers to agricultural products such as poultry, seafood and feed additives as well as approval of biotechnology products.

INTELLECTUAL PROPERTY

The deal includes stronger Chinese legal protections for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods.

The deal contains commitments by China to follow through on previous pledges to eliminate any pressure for foreign companies to transfer technology to Chinese firms as a condition of market access, licensing or administrative approvals and to eliminate any government advantages for such transfers.

China also agreed to refrain from directly supporting outbound investment aimed at acquiring foreign technology to meet its industrial plans — transactions already restricted by stronger US security reviews.

CURRENCY

The currency agreement contains pledges by China to refrain from competitive currency devaluations and to not target its exchange rate for a trade advantage — language that China has accepted for years as part of its commitments to the Group of 20 major economies.

The deal subjects any violations of currency commitments to the agreement’s enforcement mechanism, under which they could incur US tariffs.

A senior Trump administration official said the currency agreement is based on provisions in the US-Mexico-Canada Agreement trade deal, which require the three countries to disclose monthly data on international reserve balances and intervention in foreign exchange markets, along with quarterly balance-of-payments data and other public reporting to the International Monetary Fund.

ENFORCEMENT

Under dispute resolution is an arrangement allowing parties to resolve differences over how the deal is implemented through bilateral consultations, starting at the working level and escalating to top-level officials. If these consultations do not resolve disputes, there is a process for imposing tariffs or other penalties.

Mr Lighthizer told reporters the United States expected neither side would retaliate if appropriate action was taken as part of the process and following “consultation in good faith”.

CHINA FINANCIAL SERVICES

US officials said the deal includes improved access to China’s financial services market for US companies, including in banking, insurance, securities and credit rating services. It aims to address a number of longstanding US complaints about investment barriers in the sector including foreign equity limitations and discriminatory regulatory requirements.

China, which has pledged for years to open up its financial services sector to more foreign competition, said the deal would boost imports of financial services from the United States.

But the Global Times said that not all foreign institutions would be able to tap China’s financial market. “Naturally, entities from countries which are friendly to China will be favoured by the Chinese people,” the paper said in a commentary.


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