There is now a phase-one trade deal between the U.S. and China relieving some of the tensions between the world's two larges economies. With political moods high in both countries, each team has a lot to lose-or a lot to gain, in the continuing negotiations for phase-two. Information on the trade agreement has been sparse and continues to be released, so the information in this article is subject to change.
The current deal outlines a minimum amount of guaranteed purchases of U.S. agricultural products by China and cancels the round of tariffs that were set to come into effect Sunday. Most of the tension this week was caused by uncertainty surrounding that round of tariffs. These tariffs would have been placed on $156 billion worth of Chinese goods, primarily cell phones, laptops, clothing, and toys. These products are, of course, especially popular during the holidays, so this tariff was never popular.
The Trump Administration has also agreed to roll back tariffs on $120 billion worth of Chinese goods to 7.5%. $250 billion in goods will still be under a 25% tariff. The agreement also includes reforms by China on its protection of intellectual property, technology transfer, financial services, and currency exchange.
According to the top negotiator for the U.S., Robert Lightzer, China has agreed to purchase $40 billion worth of agricultural goods compared to the $7 billion made in the last 12-months. This last 12-month period has been so low because China cut off the purchasing of U.S. ag. goods due to tariffs Trump had placed on Chinese goods.
Right now, rolling back tariffs is a risky move for the U.S. negotiators. Many were hesitant to remove tariffs that they felt were their strongest leverage. Before the announcements, officials estimated he U.S. would roll back tariffs on $110 billion, so they stayed relatively close to their goal.
There simply wasn't a realistic agreement to be made with China that didn't include a reduction of tariffs. In November, China's exports to the U.S. plunged by 23%. This continues a trend of double-digit percentage declines in exports since the now 19-month trade war began. The Chinese government needs to turn those numbers around especially with unrest in Hong Kong potentially undermining their position.
All of this decision making has only been phase-one of the negotiations. From here on, negotiators will be discussing much more difficult questions. Still to be decided is an agreement on the regulation of forced-technology transfer, subsidies, and the behavior of Chinese state-owned firms. Previously, trade negotiations with China were held up by efforts because Robert Lightzer, head negotiator for the U.S. was busy working on the U.S.-Mexico-Canada Trade Agreement. Now that that agreement has passed in Congress, the Administration has won itself a little breathing room in the Chinese negotiations.
The way forward is all "totally up to POTUS", according to White House chief economic adviser Larry Kudlow. Wilbur Ross and Jared Kushner have both echoed the same sentiment individually: no one knows what President Donald Trump will do. The current agreement has been reached, but "If [Trump] is not satisfied with the talks... he would not hesitate to increase tariffs." If it appears that China is not holding up their part of the deal, tariffs will be reapplied.
Of course, one question is how the impeachment hearings going on in the House are affecting our negotiating position abroad. As you might expect, the officials, like Larry Kudlow, think that "the Chinese... and a lot of people know" that "this impeachment stuff [isn't] going anyplace." Trump, on the other hand, tweeted in May that he suspected the Chinese government was attempting to renegotiate the trade deal in order to stall until one of the "very weak Democrats" is in office so they can "continue to rip off the United States... for years to come."
Meanwhile, the trade war is starting to seem less and less attractive to Republican lawmakers. According to a study by Chad Bown of the Peterson Institute for International Economics and Emily Blanchard and Davin Chor of Dartmouth, Republicans lost five seats in the 2018 Congressional elections due to the tariff war. It's pivotal for Republican 2020 election prospects that they get a win from these negotiations. A strong economy is the number one concern for many voters in presidential elections, so they also can't risk any negative economic repercussions.