US & China Sign Deal but USD Flat Amidst Doubts

Alan Penny

16 January 2020

3 min read

microphones pointed at US and China flags in conference setup

  • US President and Chinese Vice Premier signed the trade deal at the White House
  • Markets still concerned over remaining unresolved issues
  • Talks for ‘Phase 2’ have already started

On Wednesday, the United States and China signed the “Phase 1” trade deal, thereby defusing tensions. However, the US dollar index remained flat at 96.959 in the Asian session as investors are still concerned.

Markets are subdued as they aren’t excluding the possibility of new tensions arising between the two countries.

Many issues remain unresolved, of which some are incredibly significant. Thus, markets are subdued as they aren’t excluding the possibility of new tensions arising between the two countries.

President Trump views partial trade deal as a win

US President Donald Trump and Chinese Vice Premier Liu He signed the “Phase 1” trade agreement at the White House. The move relaxed tensions between the two countries, for the moment.

Many issues still need to be addressed, some of which are quite significant. While President Trump acknowledged that more work is needed, he still counted the signing as a win.

He stated, “Together, we are righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers and families.”

Chinese President Xi Jinping sent a letter, which the Vice Premier read aloud. President Jinping stated that the deal was a clear indication the US and China could solve their problems through negotiations.

Among other things, in this partial trade agreement, China pledged to buy an extra $200 billion’s worth of US goods and services over the next two years. China’s imports from the US amounted to $186 billion in 2017, which was set as the baseline.

China will purchase an additional $32 billion in farm goods, $38 billion in services, $54 billion in energy, and $78 billion in manufacturing products from the US in 2020 and 2021.

Initially, China had been reticent to commit to purchasing specific amounts of US farm goods. This led to Beijing signing new contracts with Brazil for the purchase of soybeans. However, Liu stated that their commitment to the United States would not affect any “third parties’ interests.”

Not everyone thinks the US-China deal is a good thing

The markets seemed positive after the signing, with some key global stock market indices forming new highs. However, it didn’t last as concerns resurfaced that tensions would arise soon enough.

One such issue concerns counterfeited goods. Trump stated the deal incorporated powerful protection of intellectual property rights. The US insisted that China apply enforcement strategies “with real teeth.” If Beijing doesn’t comply, it could lead to Washington imposing tariffs in retaliation and the deal falling apart.

Furthermore, some don’t think the deal is quite as great as President Trump makes it out to be. Michelle Erickson-Jones, the spokeswoman for Farmers for Free Trade and a wheat farmer, is in this camp.

She says that it doesn’t handle “big structural changes.” Instead, the deal will lead to US farmers becoming more and more reliant on purchase controlled by the Chinese government.

Some feel Trump mishandled the whole situation with China. Speaker Nancy Pelosi issued a statement saying that Trump’s strategy was ill-advised. She said it “inflicted deep, long-term damage to American agriculture and rattled our economy in exchange for more of the promises that Beijing has been breaking for years.”

Remaining tariffs to be removed after Phase 2 deal

As a result of the deal, the US dropped any plans for additional tariffs on Chinese cellphones, laptops, and toys. Washington also reduced tariffs by half, down to 7.5%, on $120 billion’s worth of other goods.

However, the 25% duty on $250 billion’s worth of industrial products and components will remain in place. The retaliatory tariffs China imposed on $100 billion’s worth of US products will also remain in effect.

President Trump stated that he’d agree to drop the remaining tariffs as part of the second phase of the deal.

According to Vice President Mike Pence, negotiations on the Phase 2 trade agreement have already begun. He didn’t share any further details.

Written By
Alan Penny

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