US and China’s Phase One Trade Deal: A Win?

After two years of tension, the US and China have finally signed the first phase of a new trade agreement. President Trump hails this as a “momentous step towards a future of fair and reciprocal trade”, claiming to be righting the wrong of the past. Experts are skeptical of the claim, head of economics at Legal & General Investment Management (LGIM), Tim Drayson, stated that the deal doesn’t address key issues, and claims the deal will be difficult for China to stick to, as well as the trade barriers that are still firmly in place.

So what does the trade deal entail? China has agreed to purchase roughly $200 billion worth of American goods and services, though much of the previous $360 billion worth of tariffs are still in place. China promises to also restrict requests for confidential data access when reviewing US companies for market access, pledging to speed up the authorisation process for US biotech products. On the other hand, the US has agreed to halve some of the new tariffs imposed on China.

Though this can be seen as a win on both sides, is it really? Economists have found that the cost of the remaining tariffs are being borne entirely by US companies and consumers, not to mention the lost business due to retaliation. Beyond that, farmers are soaring in bankruptcy, prompting a $28 billion bailout due to China’s tariffs. Though the President Trump claims China will purchase $50 billion worth of agricultural goods a year, the official figures are lower, and depends on market demand. Even the lower figures are unlikely to be attainable.

US Treasury Secretary Steven Mnuchin states that the Trump administration will impose further tariffs if China will not abide by the agreement and address further issues in the next phase of discussions. “This gives China a big incentive to get back to the table and agree to the additional issues that are still unresolved,” Mnuchin notes.

These “further issues” include the fundamental structural issues in trade between US and China, China’s questionable trade practices, as well as their labour laws. The Trump administration is hopeful for change, though the public remains sceptical.