- The ‘phase one’ deal is far from solving all the issues on the table, but given that such a move seemed improbable not so long ago, it is a significant achievement
After months of often difficult talks, China and the United States have finally agreed on a deal that could pave the way for substantive negotiations to resolve their trade war. Under the limited "phase one" agreement, the US dropped additional tariffs due to go into effect today on about US$160 billion of Chinese goods and agreed to halve tariffs imposed on US$120 billion of goods in September to 7.5 per cent. Tariffs imposed earlier on US$250 billion of Chinese items remain at 25 per cent. In return the deal calls for China to buy more products from American farmers. US President Donald Trump says China has agreed to buy US$40 billion to US$50 billion of farm products a year, an increase of up to US$29 billion. China also agreed to extra purchases of various US-manufactured goods " food, agricultural and seafood products " and energy products and services.
Beijing says the agreement covers a wide range of areas, including the contentious topics of intellectual property protection, technology transfer and market access for American firms. Both sides said detailed talks would continue on remaining issues.
In terms of breaking a prolonged deadlock in a trade war that is hurting global growth, it is all good news where previously there was precious little. Anticipating the announcements, stock markets surged on the prospect of real progress in ending the trade war.
The reality, of course, is that the deal is far from solving all the issues on the table. It opens the way for even harder talks. However, the apparent pragmatism in the approach from both sides is a positive sign. With a bid for re-election less than a year away, Trump needed to show something for all his tough talk on trade. China needed some relief from punishing tariffs on its exports that are not making it any easier to sustain targeted economic growth.
Lack of trust on both sides has been an ever-present obstacle. It remains palpable. In this respect American critics were quick to raise questions over the deal, such as a lack of specifics on farm purchase commitments and enforcement mechanisms and Trump's unpredictability and mercurial negotiating style.
On the other hand, state media welcomed positive signs from the American side of the negotiating table, such as the US at last taking seriously China's requirement that tariffs be eased according to the progress of the talks.
The "phase one" deal may be dwarfed by the structural issues that negotiators now have to tackle. But given that not so long ago it seemed improbable in the immediate aftermath of US moves to sanction Hong Kong and Xinjiang officials that angered Beijing, it should be seen as a significant pragmatic achievement.
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