Phase 1 of a multi-phase trade agreement between the United States and China has been reached and is expected to be signed in January. Although the Phase 1 deal fails to remove some of the largest tariffs imposed on the two countries, it marks a significant first step in resolving an economic standoff that has detrimentally impacted global markets. From what we know so far, the Phase 1 deal includes the Trump administration reducing tariffs from 15 percent to 5 percent on a smaller section on Chinese consumer goods, according to a USTR facts sheet. Furthermore, Trump has promised to waive the tariffs set to be placed Saturday on 160 billion dollars of additional Chinese imports. In return, China has promised to waive it’s retaliatory tariffs and increase spending on American agricultural goods by 200 billion dollars.
Apart from a notable increase in Chinese spending on US agriculture, the Phase 1 deal also aims to reduce concerns of Chinese tech theft. The Trump administration has been vocal about the impact of intellectual property theft from China and uses Phase 1 to address this issue by targeting the Chinese business practice that requires US business to share their technology with partnered Chinese firms.
After Phase 1 was announced, the US markets responded with a small bump as investor’s hopes for the end of the US-China trade war start to come to life. As more Phases are rolled out, we can expect to see a proportional gain in the US markets and hopefully a global economic rebound.
Keith Knutsson of Integrale Advisors commented that, “Although the Phase 1 deal is seen as a short-term win for the Trump administration, there is a long way to go for the United States government to recuperate losses accrued during the height of the trade-war, especially in the damaged manufacturing market.”