Photo: Image Courtesy: White House/Tia Dufour

US, China Reach ‘Phase One’ Trade Deal

The United States and China have signed a “phase one” economic and trade agreement that is expected to ease trade tensions between the largest two economies in the world.

The deal was signed between the US President Donal Trump and China’s Vice President Liu He in Washington on January 15, 2020.

“This agreement will begin rebalancing our trade relationship with China and provide new opportunity for American businesses and farmers,” the White House said in a statement.

Under the deal, China has pledged to increase imports of American goods and services by at least USD 200 billion, compared to 2017 levels. The country has also agreed to end its practice of forcing foreign companies to transfer their technology to Chinese companies in order to gain market access and address longstanding intellectual property concerns.

On the other hand, the US has agreed to halve some of the tariffs imposed on Chinese goods and canceled another round that was set to take effect in December 2019. However, it will maintain 25 percent tariffs on a USD 250 billion worth of Chinese products.

Welcoming the signing of the phase one trade deal, the National Retail Federation said that “work remains to be done to end the trade war between the two countries.”

“The trade war won’t be over until all of these tariffs are gone. We are glad to see the phase one deal signed, and resolution of phase two can’t come soon enough,” Matthew Shay, NRF President and CEO, commented.

The signing of phase one US-China trade deal will also have an impact on energy trade between the two countries, according to Gavin Thompson, Wood Mackenzie Asia Pacific Vice Chair.

“From an energy perspective, what is most notable is China’s agreement to increase energy imports from the US by up to USD 52.4bn from the US over the next two years as a part of a commitment to spend around USD 200 billion more on US goods and services than it did in 2017,” he said in a separate statement.

He explained that neither the 5 percent tariff on US crude oil nor the 25 percent tariff on US LNG is to be reduced or removed by China under the phase one deal.

“For China to massively increase imports of oil and LNG from the US while tariffs remain in place is going to be challenging.”

“If China is to increase the value of US LNG imports considerably …, then the 25% tariff would need to be either absorbed by the importing company or passed through to the consumer.”

“We expect that Chinese national oil companies will be reluctant to commit to large-scale purchases given this. At the same time, the next two years will also see a slower pace of gas demand growth in China, rising domestic production, and the arrival of Russian pipeline gas, creating a more competitive gas market,” Thompson concluded.