The United States and China have taken a huge step forward in trade negotiations, with the signing of a Phase One Trade Deal between the two nations. Although only a preliminary agreement intended to ease tensions and create a framework for moving forward, it’s still extremely positive news that will benefit consumers and financial market investors.
What’s Included in This First Step?
There are some key details in the agreement that will help to improve trade on both sides.
Chinese negotiators agreed to implement a program that would result in the purchase of $200 billion of goods and services over the next two years.
The U.S. has agreed to reduce tariffs on $120 billion worth of Chinese goods, from a current level of 15%, down to 7.5%. It is also expected that President Trump will hold the implementation of any new tariffs.
This will benefit both nations in significant ways. China’s consumer confidence index increased after the deal was signed.
If the deal is upheld, U.S. exports to China will increase to around $260 billion this year, and around $310 billion in 2021.
Products that China will buy from the U.S. include soybeans, cotton, wheat, and pork. This will give a boost to the U.S. agricultural sector, which has suffered significantly since the trade relationship deteriorated a year ago.
China also agreed to stop pressuring foreign companies to transfer technology and key trade secrets when doing business with Chinese companies. Beijing representatives also promised to enforce stricter intellectual property protections, but no details have been revealed surrounding how this will be done.
What Does the U.S. Want from a Phase Two Trade Deal?
While the new agreement is an important step for both nations, there has been criticism that it only undoes some of the damage that has been caused by a year of tensions.
Peter Navarro, one of Trump’s top trade advisors said this week that a second deal would need to cover China’s cyber intrusions on U.S. businesses. He said that “Chinese government officials continue to hack into American businesses and steal trade secrets. It’s very destructive to our business.”
Navarro also said that the U.S. has a long term goal of having China end its subsidization of state-owned enterprises that compete with American companies.
Negotiations will continue in the coming months, and, at least for now, investors can be relieved knowing that the relationship between the world’s two largest trade partners is normalizing.
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