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US, China set to sign vital trade truce

15 Jan 2020 / 22:13 H.

WASHINGTON: The world’s two dominant economic powers, the United States and China, are poised to sign a trade truce on Wednesday, letting businesses around the globe breathe a sigh of relief.

After a nearly two-year battle, the signing could give US President Donald Trump an election-year boost as well. Still, tariffs on hundreds of billions of dollars in imports remain in place, leaving many Americans to foot the bill.

The ‘phase one’ agreement - which includes pledges from China to beef up purchases of American crops and other exports - also comes just as Trump faces an impeachment trial in the US Senate, giving him a victory to trumpet at least in the short term.

The easing of US-China trade frictions has boosted stock markets worldwide in recent weeks, as it takes the threat of new tariffs off the table for now.

And Treasury Secretary Steven Mnuchin said Trump’s negotiating stance led to a “fully enforceable deal” which could bring additional tariffs.

If China fails to abide by the agreement, “the president has the ability to put on additional tariffs,“ Mnuchin said on CNBC Wednesday as part of a media blitz promoting the new pact.

However, the most difficult issues remain to be dealt with in “phase two” negotiations, including massive subsidies for state industry and forced technology transfer.

But Mnuchin said the deal puts pressure on Beijing to stay at the negotiating table and make further commitments, including on cyber-security and other services to win relief from the tariffs that remain in place.

“In phase two there will be additional roll backs,“ Mnuchin said. “This gives China a big incentive to get back to the table and agree to the additional issues that are still unresolved.”

Whither tariffs?

Still, elements of the deal the administration has touted as achievements effectively take the relationship between the two powers back to where it was before Trump took office.

“The US-China phase-one deal is essentially a trade truce, with large state-directed purchases attached,“ economist Mary Lovely said in an analysis.

Even so, “The truce is good news for the US and the world economy.”

Still, the trade expert with the Peterson Institute for International Economics, cautioned that “we will continue to see the impact of this in slower investment and higher business costs.”

US officials have said they will release details of the agreement set to be signed at a White House ceremony at 11:30 ET Wednesday.

After announcing the deal Dec 13, the US canceled a damaging round of new tariffs that were due to kick in two days later and promised to slash in half the 15% tariffs on US$120 billion (RM490 billion) imposed Sept 1 on consumer goods like clothing.

Mnuchin dismissed a Bloomberg report that the initial agreement could include provisions to roll back more tariffs on China after the election.

“The tariffs will stay in place until there is a phase two. If the president gets phase two quickly, he will consider releasing tariffs. If not, there won’t be any tariff relief,“ Mnuchin said Tuesday on Bloomberg TV.

“It has nothing to do with the election or anything else.”

What’s in a deal?

Washington said Beijing agreed to import, over two years, US$200 billion of US products above the levels in 2017, before Trump launched his offensive.

Trump has repeatedly touted the trade pact as a boon for American farmers, saying China will buy US$40 to US$50 billion in agricultural goods.

US farmers were hit hard by the tariff war - notably on soybeans which saw exports to China plunge to just US$3 billion from more than US$12 billion in 2017. The Trump administration paid out US$28 billion in aid to farmers in the last two years.

But many economists question whether they have the capacity to meet that demand.

Andy Lovely raised a question about the wisdom on relying so heavily on the Chinese market.

“It also means Chinese retaliation could be reinstated, dampening farmers’ willingness to invest to meet the very hard export targets in the deal.”

US and Chinese officials say the agreement includes protections for intellectual property and addresses financial services and foreign exchange while including a provision for dispute resolution, which Mnuchin said will be binding for the first time.

Trump in August formally accused China of manipulating its currency to gain an advantage in trade and offset the impact of the tariffs.

The label, which had no real practical impact, was removed earlier this week.

The deal also restores a twice-yearly dialogue process that previous administrations conducted regularly but that Trump scrapped. - AFP

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