IN so many ways, the trade agreement signed last Wednesday by United States President Donald Trump and China Vice Premier Liu He was an “incredible breakthrough” and a “momentous step,” in the words of the US president.
The “phase one” agreement included pledges for China to increase its imports of American goods to help reduce the imbalance in US-China trade relations. Beijing agreed to import an additional $200 billion in US goods in the next two years, above the levels of its purchases in 2017, including an additional $32 billion in agricultural goods.
This is a great boon for American farmers who had suffered from the US-China trade war these last 18 months. US soy bean exports to China had plunged to $3 billion from $12 billion in 2017 and the Trump administration had to pay some $28 billion in aid to American farmers because of this. President Trump cannot afford to have so many disgruntled American farm voters with the election in November only a few months away.
China also committed to $54 billion in additional energy purchases, $78 billion in additional manufacturing purchases, and $38 billion in services. White House economic adviser Larry Kudlow projected an increase of 0.5 percentage point in the US Gross Domestic Product (GDP) in both 2020 and 2021.
The phase-one agreement, in turn, cancelled planned US tariffs on Chinese-made cellphones, toys, and laptop computers and halved the tariff to 7.5 percent on about $120 billion worth of Chinese TV sets, Bluetooth headphones, and footwear. But a 25 percent tariff on $250-billion array of Chinese industrial goods and components remain in place, as will China’s retaliatory tariffs on over $100 billion in US goods.
But perhaps the greatest boon to China from the agreement is the fact that it ended 18 months of a trade war, 18 months of uncertainty that hang like a shadow over China’s economic development. All these months, there had been uncertainty the world over, that held back the usual pace of development and growth of so many nations.
There are still many issues that need to be resolved in the coming months, including the many tariffs that the two nations have already slapped on each other’s products. But the period of retaliatory moves is over. The 18-month trade war is over, replaced by the prospects of steadily improving relations in the coming months and years. That is the most valuable benefit from the agreement signed last Wednesday.
