On Thursday, President Donald Trump announced a "Phase 1" agreement with China. It's the first meaningful breakthrough since the trade war kicked off early last year. The basic parameter of the deal is China agreeing to buy $50 billion worth of U.S. agriculture, and the U.S. agreed to delay another round of tariffs set to be implemented on December 15.
The deal is scheduled to be finalized and signed in January and then look to start working on Phase 2 of the trade deal. The U.S. will keep 25% tariffs on $250 billion of imported Chinese goods but will reduce tariffs on $120 billion of products from 15% to 7.5%. China also pulled back on tariffs which were set to go into effect on US-made car parts, autos, and corn. However, other tariffs will remain in place.
Other parts of the deal include China tamping down on intellectual property violations and continue opening up parts of its economy like technology and financial services to foreign firms. However, there has been no clear indication of how enforcement or compliance will work.
Doubts Linger
Despite the enthusiasm in stock prices which hit new highs following the deal's announcement, there remain significant reasons to question whether the deal will be signed. The biggest warning sign is that Chinese media has yet to report on the deal, and all the positive headlines have come from the U.S. side. China would be loath to make specific commitments especially if the U.S. is not completely removing tariffs.
Trump touting the $50 billion figure also seems far-fetched as China's entire agriculture market was around $80 billion in 2018. One interpretation is that President Trump folded as he didn't want to escalate the trade war going into his reelection and threaten the economy's prospects.
China got the most significant, tangible victory - tariff hikes did not go in place. The U.S. has given vague, unenforceable promises to buy unrealistic amounts of agricultural products and assurances on IP theft, technology transfers, and China opening its economy. A more cynical view is that Trump simply wants China to say it will buy $50 billion from American farmers because it'll make for good ads in swing states during election season.
