President Trump and Chinese Vice Premier Liu He signed the “phase one” trade agreement today to much fanfare. The 86-page agreement was trumpeted by the president as a “big, beautiful monster,” but details of the deal were uncharacteristically absent prior to the signing.
The US Trade Representative published a two-page fact sheet about the deal more than a month ago after the agreement was announced, but the link was broken when I tried to retrieve it for this article. Nevertheless, the site does give some broad details such as, “The United States will be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports.”
New fact sheets and the text of the entire agreement are now on the Trade Representative site. You can access those documents here. Among the items in the agreement are:
- Intellectual Property concerns regarding pirated and counterfeit goods
- Protection against unfair technology transfers
- Increasing China’s purchases of US goods by $200 billion over 2017 levels
- Commitments by China to refrain from devaluing its currency
Other, more difficult issues, such as Chinese industrial subsidies, are slated to be addressed in subsequent agreements. President Trump has hinted that there may be as many as three phases to the China deal.
Under the new deal, Mr. Trump’s tariffs are here to stay, at least for the foreseeable future, but at least new rounds of tax increases have been staved off. The executive agreement does not have to be ratified by Congress.
As late as this morning, even Fox News had conflicting information from each side. US sources told Fox that Chinese purchases of US goods would “total $205 billion to $210 billion over two years while Chinese sources indicate the buys would be between $215 billion and $220 billion.” These figures include purchases of US agricultural products, manufactured goods, energy, and services. As noted above, the number cited by the US Trade Representative fact sheet is actually $200 billion.
Treasury Secretary Steven Mnuchin told Fox, “There’s a very detailed dispute-resolution process. This is an enforceable agreement just as the president dictated it would be.”
The Washington Post reports that the enforcement provisions a “process of consultations” to resolve disputes. The consultations will be backed up by the threat of – you guessed it – more tariffs.
Regardless of the details, markets have cheered the agreement. The most important detail may be simply that, at least for the time being, no new trade taxes will be applied to Chinese imports and exports. Even though the trade taxes remain higher than before the onset of the trade war, which has offset much of tax reform’s boost, the prospect of avoiding looming tax increases is a boon to beleaguered US agricultural and manufacturing sectors.
President Trump declared victory after the signing, saying, “Today we take a momentous step, one that has never been taken before with China, towards a future of fair and reciprocal trade.”
Now that the deal is signed and the agreement is public, economists and business groups can finally determine just how momentous that first step really is. Regardless of the details, avoiding more tariff escalations (i.e. tax increases) is a win for American business.