USD/CNY Gains as Phase One Deal “Totally Done”
- US Trade Representative Lighthizer says phase one of US – China trade deal complete
- President Trump promises not to impose a new set of tariffs on Chinese goods
- US exports to China to double over the next two years
The USD/CNY experienced gains of 0.2% to trade at 6.9979. This is after Robert Lighthizer stated that the first phase of the US-China trade deal was “totally done.” In the same CBS interview, the US Trade Representative also said a timetable for phase two talks hadn’t been established.
Lighthizer also stated that the success of the first phase of the deal was now up to China. It depends largely on who will be making the decisions. According to the US Trade Rep, “If the hardliners are making the decisions, we’re going to get one outcome. If the reformers are making the decisions, which is what we hope, then we’re going to get another outcome.”
While the phase one trade deal is “totally done”, it is set to be signed sometime in January. The text of the deal has to be translated and might require minor revisions.
The phase one trade deal: what we know
The phase one deal between the United States and China comes after two and a half years of intermittent negotiations.
According to announcements, the deal requires the United States to reduce certain tariffs. Thus, President Trump agreed to cut duties of 15% in half on Chinese imports worth $120 billion. However, the 25% tariff imposed on $250 billion’s worth of Chinese goods will remain in effect.
Furthermore, the president agreed to delay the new set of import duties that were set to go into effect on December 15th.
China has pledged to increase the amount of American farm and manufacturing goods it purchases. It also has to take more action to protect US intellectual property and to stop forcing American companies to transfer their technology to Chinese firms. Finally, China must avoid manipulating its currency, while also opening up the financial services market to American firms.
Ning Jizhe, the National Development and Reform Commission’s vice chairman, stated that China had to comply with the World Trade Organization’s regulations for agricultural imports. He also said that expanding trade between the United States and China would not affect China’s other trading partners.
President Trump told reporters the U.S. would use the remaining tariffs as leverage in phase two negotiations with China. He also said China wanted to start talks on the second phase immediately, despite Beijing’s claim that phase two talks would depend on the implementation of phase one.
Lukewarm response from the market
However, both the US dollar and the Chinese yuan dipped during today’s Asian trading session. The US dollar index lost 0.1% to reach 96.655. This is despite some referring to the finalization of this first phase of the deal as historic.
According to Robert Brusca, Chief Economist at Fact and Opinion Economics, the market is skeptical because a phase one deal was expected. Investors also expected that the new set of tariffs Washington wanted to impose would be delayed.
He does say that the phase one deal certainly represents progress and is a necessary first step, though some major issues have been delayed. For example, state-owned enterprises and similar problematic issues were left for phase two. However, he also states that some skepticism is to be expected, considering that not all the details of the deal were made public. Thus, no one is really certain what the United States received and what China received.
Despite the lukewarm reaction of the markets, the deal is still a positive first step. It addresses some major concerns surrounding free trade, such as currency manipulation and forced technology transfer. It also signifies a truce between the two countries in terms of trade.
The Democrats, though, are displeased with the deal. Chuck Schumer, Senate Minority Leader, stated that President Trump “sold out.” He implied that China couldn’t be trusted to fulfill its promise to purchase more American farm goods.
Markets are demanding phase two talks get underway as quickly as possible. However, thus far, experts have stated that a truce between the US and China would improve the odds for a 2020 global economic rally.