This Could Derail a Phase One Trade Deal

We’re waiting to see what happens next with the trade war.

“We have agreed to a very large Phase One Deal with China. They have agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more,” tweeted President Trump.

“The 25% Tariffs will remain as is, with 7 1/2% put on much of the remainder.  The Penalty Tariffs set for December 15th will not be charged because of the fact that we made the deal. We will begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 Election. This is an amazing deal for all. Thank you!”

While that’s certainly something to cheer, nothing is in writing just yet.  Nothing has been signed. There’s also a sizable unknown with the deal regarding agricultural purchases.  

Granted, Trump said China would buy $50 billion worth of agricultural products “very soon.”  Reuters even reported that U.S. Trade Representative Robert Lighthizer said China would buy at least $16 billion more agricultural goods in each of the next two years, bring total purchases to near $50 billion in 2020 and 2021.

However, China has been reluctant to mention any of this so far.  

“That scale of purchases seems implausible and Chinese officials were reluctant to mention any specific target during their press conference,” Nomura analysts, including chief China economist Ting Lu, said, as quoted by CNBC.

If the two sides can’t agree on this point, there’s fear there won’t be any deal at all.

What’s Currently in the Phase One Deal

So far, we don’t know much about what’s actually in the deal.

Neither side has provided many details.  What we do know is that planned 15% U.S. tariffs on $160 billion worth of Chinese goods has been taken off the table.  China also canceled its retaliatory tariffs, which included a 25% tariff on U.S. autos, as noted by Reuters.

The U.S. also said China has agreed to increase its purchases on products and services by up to $200 billion over the next two years.  While making no mentions of hard targets, China said it would import more wheat, rice, corn, energy, and pharmaceuticals. 

In addition, there is allegedly a deal for stronger Chinese legal protections for patents, trademarks, and copyrights.  “The deal contains commitments by China to follow through on previous pledges to eliminate any pressure for foreign companies to transfer technology to Chinese firms as a condition of market access, licensing or administrative approvals and to eliminate any government advantages for such transfers,” as also noted by Reuters.

While this all sounds like great news, it’ll be even better once on paper – and signed.