GP Insights

GP Insights # 218, 18 January 2020

A new phase in the US-China trade, as both ink the first cut
Sukanya Bali

What happened?
On 15 January 2019, China and the US signed the first phase of the trade deal. Donald Trump called the deal, "the biggest deal anybody has ever seen" whereas Chinese leaders called it a "Win-Win" deal.

The deal was signed by China Vice Premier, Liu He, and the US President Donald Trump. 

According to the deal, the US will cut some tariffs in exchange for promises from China, to buy more US goods and take steps to protect intellectual property. China has agreed to purchase over $200 billion of US goods and services over the next two years. The US will cut the tariff rate to 7.5 per cent on $120 billion of Chinese goods. The deal contains assurances that foreign companies will not be forced to transfer technology in return for access to the Chinese market.  

What is the background?
The US-China trade war began in 2018 had slowed the global economy. 

Tensions between the countries escalated when the US and China began imposing tariffs on goods worth hundreds of billion-dollars. President Trump had accused China over the 'unfair' trade practices and intellectual property theft. In 2016 during the election campaign, Trump had promised to go tough on China as unfavourable trade with China affected American jobs and industries.

Multiple rounds of discussions have taken place between the two countries; there were numerous occasions during which both countries came together, but fell apart.

What does it mean?
First, China agreed on the purchase of $50 billion in energy supply, $50 billion in agriculture products, and $75billion in manufacturing products. It seems hard for China to keep its commitment to its new trading partners. The investment by China in new developing countries will again be on the verge of debt trapping and lessen import from those countries.

Second, this trade deal is considered as a 'win-win' strategic move by Trump for the upcoming 2020 Presidential election. Trump claimed that he had kept his 2016 election promise. With the impeachment debate in the Senate, will the trade deal influence the former? 

Third, the trade-war was perceived as an attempt by the US to prevent or slow down China's global rise. Developing countries faced the impact of the trade war between the two countries. Now the big question is whether the signing of the first phased of the deal between the two countries has ended the uncertainty for the developing economies.

Fourth, the deal appears to be a big issue for the US; but on China's side, it has not received that limelight. Whereas Trump stated, this as the "biggest deal anybody has ever seen" the Chinese media and Xi, just see the deal as both the countries making progress.

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