U.S., China sign "phase one" deal for truce in bruising trade war

16, Jan. 2020

(U.S. President Donald Trump (R) and Chinese Vice Premier Liu He pose with signed trade document at the White House) [Getty/Kyodo]
(U.S. President Donald Trump (R) and Chinese Vice Premier Liu He pose with signed trade document at the White House) [Getty/Kyodo]

WASHINGTON, Kyodo - The United States and China formally reached a truce in their two-year trade war, as they signed on Wednesday a deal that will lead to a rollback of some U.S. tariffs and require China to boost purchases of farm and other products.

"Today we take a momentous step...toward a future of fair and reciprocal trade," U.S. President Donald Trump said in a signing ceremony at the White House for the so-called phase one deal, emphasizing that it will also address various concerns over Chinese trade practices that have put U.S. firms at a disadvantage.

Chinese Vice Premier Liu He, the country's top negotiator, said it is "a mutually beneficial and win-win agreement" that will bring about stable economic growth and serves the interests of the producers, consumers and investors of both countries.

The Trump administration sees the latest agreement as the first part of a bigger trade deal to address longstanding U.S. complaints over China's economic and trade regime.

While Trump is expected to tout it as one of his major achievements as he seeks re-election in November, some key U.S. concerns, such as China's extensive use of industrial subsidies, have been left unresolved for the time being. Ensuring that the two countries follow through with their commitments may also prove a challenge.

Under the agreement, which will enter into force within 30 days of the signing, the United States backed off its threat to impose new punitive tariffs in December and will halve its current 15 percent tariff rates imposed on $120 billion of Chinese items.

For its part, China will increase its purchases of U.S. goods and services over the next two years by at least $200 billion, including $32 billion on agriculture alone, in a move that is expected to help reduce the chronic U.S. trade deficit. China also plans to buy more manufactured goods and energy.

China has also agreed to strengthen intellectual property protection and pursue financial services liberalization, while committing to address allegations of forced technology transfer and currency manipulation to boost exports.

Just days ahead of the signing ceremony, the U.S. Treasury Department dropped China from a list of countries tagged with the label of "currency manipulator," saying Beijing "has made enforceable commitments to refrain from competitive devaluation."

To ensure effective implementation and enforcement of the agreement, a dispute resolution system will be put in place, setting procedures for addressing issues and enabling each party to take the responsive actions it deems appropriate, according to the Office of the U.S. Trade Representative.

The United States will maintain a tariff rate of 25 percent for approximately $250 billion of Chinese imports -- roughly half the amount China sold to the United States in 2018.

The move means that $370 billion of Chinese goods will continue to be affected by punitive levies imposed by the United States since the tit-for-tat trade war started in July 2018.

Trump said Wednesday that his administration has left the tariffs in place "because otherwise we have no cards" for the "phase two" negotiations, which he said will start as soon as the initial deal kicks in.

He said he will agree to take the tariffs off "if we are able to do phase two," but future negotiations could pose a challenge as the United States seeks to dig deeper into China's structural issues, on which Beijing may not budge.

Trump had earlier suggested that he may not rush to conclude the phase two negotiations, saying, "I might want to wait to finish it until after the election."

The truce between the economic giants is a relief for the world economy, which has been impacted by the escalating tariff war, as well as for the two countries.

A study by a U.N. trade body released in November has showed that the United States itself is also bearing the brunt of tariffs on China as their associated costs have been largely passed on to consumers and importing firms in the form of higher prices.

The U.S. Chamber of Commerce welcomed the signing of the latest trade deal, hailing it as a "new chapter in U.S.-China relations."

"When fully implemented, China's commitments will create a better environment for U.S. exporters and investors and begin the process of rebalancing the economic relationship between the United States and China," CEO Thomas Donohue said in a statement.

But the Chamber of Commerce also urged the two parties to move swiftly to the next stage of their talks to address significant concerns in the areas of subsidies, digital trade, and non-tariff barriers to U.S. manufacturers and service providers.

Economists and experts on China, meanwhile, have pointed out that the "phase one" deal is far from fundamentally resolving the dispute between the two countries, with their rivalry to continue not only in the trade sphere but also in political and other areas. (Kyodo)