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US-China Agree on Phase One of Trade Deal

China and the United States have agreed on “phase one” of the long-awaited trade deal between the world’s two biggest economies, causing markets to rally and easing global tensions after more than a year of tit-for-tat tariff warfare.

In what many view a “historic” agreement, China will be required to purchase more US goods — including agriculture, energy, and manufacturing products — to rebalance what US President Donald Trump has long described to be “unfair trade” and address intellectual property (IP) concerns of the US, while Washington agreed to reduce the tariffs it implemented on some Chinese goods.

The deal will China purchasing more American products and services — at least $200 billion — over the next two years. Purchases should increase thereafter, reducing the trade deficit with China substantially.

China will increase purchases of US farm products by $32 billion over the next two years. They’ve also committed to increasing those purchases by $5 billion annually, to meet the $50 billion mark that President Trump set. 

Tariffs Reduced

The US, in turn, will defer a 15% tariff on about $160 billion worth of Chinese goods that had been scheduled for Dec. 15. This would have included mobile phones, laptops, clothing, toys, and computers.  Beijing will also not proceed with its planned retaliatory tariffs — which included a 25% levy on US-made cars.

Washington will also halve the tariff rate it imposed last Sept. 1 on about $120 billion worth of goods from China, leaving a tariff of 7.5% on these products. The remaining 25% tariff on another $250 billion worth of Chinese goods will remain in force until both parties complete and agree on the second phase of the trade deal next year.

“The United States and China have reached a 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 IP transfer, agriculture, financial services, and currency and foreign exchange,” the US Trade Representative said in a statement.

“The Phase One agreement also includes a commitment by China that it will make substantial additional purchases of US goods and services in the coming years.  Importantly, the agreement establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement. The United States has agreed to modify its Section 301 tariff actions in a significant way,” the statement added.

The agreement also provides for stronger IP protection for trademarks, copyrights, and patents, to combat piracy, counterfeit and theft. Additionally, China pledged to hold back from devaluing its currency for trade advantage.

China Satisfied:

China, commenting on the partial trade deal, said the deal will bring back certainty to the markets, but also admitted that both sides “still face many issues.” 

State-run media Xinhua News Agency said the agreement “is conducive to gradually bringing China-US economic and trade relations back onto the track of normal development, [and] injecting confidence into the downward world economy and enhancing the stability of the global trade order.”

“The current China-US relations still face many issues which call for attention and careful handling,” the report said, adding that Beijing hopes “that the United States will make concerted efforts with China to effectively manage differences and expand mutually beneficial cooperation.”

The administration, meanwhile, hailed the deal, crediting the leadership of President Trump in securing it.

Meanwhile, Trump called out some Democrats for belittling the partial trade deal which Trump started negotiating in 2018:

The United States and China is set to sign the partial trade deal early in January.

President Trump launched the trade war with China citing trade imbalance with the US and the rest of the world — claiming China was taking advantage of America while hurting the US economy.

He called out the Red Dragon specifically for its glaring “unfair trade practices,” forced technology transfer facilitating IP theft from US companies, and for its protectionist policies, which put foreign investors at a disadvantage when competing with state-owned firms. 

The US also ran a $375.6 billion trade deficit with China in 2017, with the US exporting only $129.9 billion worth of goods to China while Beijing’s exports to the US totaled $505.5 billion.

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