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U.S., China set to sign massive purchases deal, easing trade war


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U.S., China set to sign massive purchases deal, easing trade war

By David Lawder

 

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FILE PHOTO: Chinese and U.S. flags are set up for a meeting during a visit by U.S. Secretary of Transportation Elaine Chao at China's Ministry of Transport in Beijing, China April 27, 2018. REUTERS/Jason Lee/File Photo

 

WASHINGTON (Reuters) - The U.S.-China trade war is set to enter a new, quieter phase on Wednesday as U.S. President Donald Trump and Chinese Vice Premier Liu He sign an initial trade deal that aims to vastly increase Chinese purchases of U.S. manufactured products, agricultural goods, energy and services.

 

The Phase 1 agreement caps 18 months of tariff conflict between the world’s two largest economies that has hit hundreds of billions of dollars in goods, roiling financial markets, uprooting supply chains and slowing global growth.

 

Trump and Liu are scheduled to sign the 86-page document, at a White House event before over 200 invited guests from business, government and diplomatic circles.

 

A translation of the text to Chinese was still being completed late on Tuesday afternoon, as Liu met with U.S. Trade Representative Robert Lighthizer.

 

Trump has already begun touting the trade deal as a centerpiece of his 2020 re-election campaign, calling it “a big beautiful monster” at a rally in Toledo, Ohio last week.

 

“Our farmers will take it in. I keep saying, ‘Go buy larger tractors, go buy larger tractors,’” Trump said.

 

The centerpiece of the deal is a pledge by China to purchase an additional $200 billion (153.60 billion pounds) worth of U.S. goods over two years to cut a bilateral U.S. trade deficit that peaked at $420 billion in 2018.

 

A source briefed on the agreement told Reuters that China will purchase an additional $80 billion worth of U.S. manufactured goods over the two year period, including aircraft, autos and car parts, agricultural machinery and medical devices.

 

Beijing will boost energy purchases by some $50 billion and services by $35 billion, while agricultural purchases will get a $32 billion lift over the two years, all compared to a 2017 baseline of U.S. exports to China, the source said.

 

When combined with the $24 billion in 2017 farm exports, the $16 billion annual increase approaches Trump’s goal of $40 billion to $50 billion in annual agricultural sales to China.

 

Although the deal could be a big boost to farmers, planemaker Boeing (BA.N), U.S. automakers and heavy equipment manufacturers, some analysts question China’s ability to divert imports from other trading partners to the United States.

 

“I find a radical shift in Chinese spending unlikely. I have low expectations for meeting stated goals,” said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis. “But I do think the whole negotiation has moved the football forward for both the U.S. and China.”

 

TARIFFS TO STAY

 

The Phase 1 deal, reached in December, canceled planned U.S. tariffs on Chinese-made cell phones, toys and laptop computers and halved the tariff rate to 7.5% on about $120 billion worth of other Chinese goods, including flat panel televisions, Bluetooth headphones and footwear.

 

But it will leave in place 25% tariffs on a vast, $250 billion array of Chinese industrial goods and components used by U.S. manufacturers.

 

Evidence is mounting that these tariffs have raised input costs for U.S. manufacturers, eroding their competitiveness.

 

Diesel engine maker Cummins Inc (CMI.N) said on Tuesday that the deal will leave it paying $150 million in tariffs for engines and castings that it produces in China.

 

The company issued tepid statement of approval on Tuesday: “We believe this is a positive step and remain optimistic that all parties will remain at the table in order to create a pathway to eliminate all of the instituted tariffs.”

 

Lighthizer and Mnuchin moved to stamp out suggestions that the U.S. and China may review possible removal of more tariffs after the November U.S. election, issuing a joint statement that there were no written or oral agreements for future tariff reductions.

 

Mnuchin later told reporters that Trump could consider easing tariffs if the world’s two largest economies move quickly to seal a Phase 2 follow-up agreement.

 

CORE ISSUES UNTOUCHED

 

The deal includes pledges by China to forbid the forced transfer of American technology to Chinese firms as well as to increase protections for U.S. intellectual property.

 

But it stops well short of addressing the core U.S. complaints about China’s trade and intellectual property practices that prompted the Trump administration to pressure Beijing for changes in early 2017.

 

The deal contains no provisions to rein in rampant subsidies for state-owned enterprises, which the administration blames for excess capacity in steel and aluminum and says threaten industries from aircraft to semiconductors.

 

It also fails to address digital trade restrictions and China’s onerous cybersecurity regulations that have hobbled U.S. technology firms in China.

 

Mnuchin and Lighthizer said these issues are key U.S. priorities for Phase 2 negotiations with China.

 

FINANCIAL SERVICES, CURRENCY, ENFORCEMENT

 

China has agreed in the Phase 1 deal to open its financial services sector more widely to U.S. firms, and to refrain from deliberately pushing down its currency to gain a trade advantage, the latter prompting Treasury to drop its currency manipulator label on Beijing.

 

While China has made such pledges in the past, a key difference that the Trump administration is touting is an enforcement mechanism to ensure compliance and resolve disputes.

 

But the enforcement relies on reimposition of tariffs if disputes cannot be resolved, returning the two countries to the current status quo.

 

(This story is refiled to correct to add Chinese vice premier’s name in first paragraph)

 

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-- © Copyright Reuters 2020-01-15
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U.S., China tiptoe around holes in new trade agreement

By Jeff Mason and Andrea Shalal

 

2020-01-15T183124Z_1_LYNXMPEG0E1SL_RTROPTP_4_USA-TRADE-CHINA.JPG

Chinese Vice Premier Liu He and U.S. President Donald Trump shake hands after signing "phase one" of the U.S.-China trade agreement during a ceremony in the East Room of the White House in Washington, U.S., January 15, 2020. REUTERS/Kevin Lamarque

 

WASHINGTON (Reuters) - The United States and China signed an initial trade deal on Wednesday that will roll back some tariffs and boost Chinese purchases of U.S. products, defusing an 18-month row between the world's two largest economies but leaving a number of sore spots unresolved.

 

Beijing and Washington touted the "Phase 1" agreement as a step forward after months of start-stop talks, and investors greeted the news with relief. But there also was skepticism the U.S.-Sino trade relationship was now firmly on the mend.

 

The deal fails to address structural economic issues that led to the trade conflict, doesn't fully eliminate the tariffs that have slowed the global economy, and sets hard-to-achieve purchase targets, analysts and industry leaders said.

 

While acknowledging the need for further negotiations with China to solve a host of other problems, U.S. President Donald Trump hailed the agreement as a win for the U.S. economy and his administration's trade policies.

 

"Together, we are righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers and families," Trump said in rambling remarks at the White House alongside U.S. and Chinese officials.

 

Chinese Vice Premier Liu He read a letter from President Xi Jinping in which the Chinese leader praised the deal as a sign the two countries could resolve their differences with dialogue.

 

The centerpiece of the deal is a pledge by China to purchase at least an additional $200 billion worth of U.S. farm products and other goods and services over two years, over a baseline of $186 billion in purchases in 2017, the White House said.

 

Commitments include $54 billion in additional energy purchases, $78 billion in additional manufacturing purchases, $32 billion more in farm products, and $38 billion in services, according to a deal document released by the White House.

 

Liu said Chinese companies would buy $40 billion in U.S. agricultural products annually over the next two years "based on market conditions." Beijing had balked at committing to buy set amounts of U.S. farm goods earlier, and has inked new soybean contracts with Brazil since the trade war started.

 

Key world stock market indexes climbed to new records on hopes the deal would reduce tensions, but oil prices slid on doubts the pact will spur world economic growth and boost crude demand.

 

Soybean futures, which traded 0.4% lower throughout much of the deal signing ceremony, sank even further after Liu's remarks, a sign that farmers and traders were dubious about the purchase goals.

 

The deal doesn't end retaliatory tariffs on American farm exports, makes farmers "increasingly reliant" on Chinese state-controlled purchases, and doesn't address "big structural changes," Michelle Erickson-Jones, a wheat farmer and spokeswoman for Farmers for Free Trade, said in a statement.

 

Trump and his economic advisers had pledged to attack Beijing's long-standing practice of propping up state-owned companies, and flooding international markets with low-priced goods as the trade war heated up.

 

Although the deal could be a boost to U.S. farmers, automakers and heavy equipment manufacturers, some analysts question https://af.reuters.com/article/commoditiesNews/idAFL4N29J26S China's ability to divert imports from other trading partners to the United States.

 

"I find a radical shift in Chinese spending unlikely. I have low expectations for meeting stated goals," said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis. "But I do think the whole negotiation has moved the football forward for both the U.S. and China."

 

Trump, who has embraced an "America First" policy aimed at rebalancing global trade in favor of U.S. companies and workers, said China had pledged action to confront the problem of pirated or counterfeited goods, and that the Phase 1 deal included strong protection of intellectual property rights.

 

Earlier, top White House economic adviser Larry Kudlow told Fox News the agreement would add 0.5 percentage point to U.S. gross domestic product growth in both 2020 and 2021.

 

Aviation industry sources said Boeing <BA.N> was expected to win a major order for wide-body jets from China, including its 787 or 777-9 models, or a mixture of both. Such a deal could ease pressure on the 787 Dreamliner, which has suffered from a broad downturn in demand for large jets, forcing the planemaker to trim production late last year.

 

TARIFFS TO STAY

The Phase 1 deal, reached in December, canceled planned U.S. tariffs on Chinese-made cellphones, toys and laptop computers and halved the tariff rate to 7.5% on about $120 billion worth of other Chinese goods, including flat panel televisions, Bluetooth headphones and footwear.

 

But it will leave in place 25% tariffs on a vast, $250 billion array of Chinese industrial goods and components used by U.S. manufacturers, and China's retaliatory tariffs on over $100 billion in U.S. goods.

 

Market turmoil and reduced investment tied to the trade war cut global growth in 2019 to its lowest rate since the 2008-2009 financial crisis, the International Monetary Fund said in October.

 

Tariffs on Chinese imports have cost U.S. companies $46 billion. Evidence is mounting that tariffs have raised input costs for U.S. manufacturers, eroding their competitiveness.

 

Diesel engine maker Cummins Inc <CMI.N> said on Tuesday that the deal will leave it paying $150 million in tariffs for engines and castings that it produces in China. It urged the parties to take steps to eliminate all the tariffs.

 

Trump, who has been touting the Phase 1 deal as a pillar of his 2020 re-election campaign, said he would agree to remove the remaining tariffs once the two sides had negotiated a "Phase 2" agreement. He added that those negotiations would start soon.

 

"They will all come off as soon as we finish Phase 2," said Trump, who added that he would visit China in the not-too-distant future.

 

(Additional reporting by David Lawder, Lisa Lambert and Susan Heavey in Washington, Tim Aeppel in New York, Mark Weinraub in Chicago, Se Young Lee and Stella Qui in Beijing and Tim Hepher in Paris; Writing by Heather Timmons; Editing by Paul Simao)

 

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-- © Copyright Reuters 2020-01-16
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So the US consumers will continue to pay for Trumps ignorance he still believes the Chinese pay the tariffs.

Go buy bigger tractors!  What with most farmers are broke and out of credit due to Donald's cleverness thats why many are committing suicide or sell the farm at give away prices. Thanks POTUS your just what America needs (According to your own self assessment) 

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Questions to ask:

1) Why didn't Xi sign this "deal?" The US president literally lowered himself to sign a deal with a Chinese subordinate. Don't think that this imagery is lost on the Asian world.

 

2) Why so many weasel words? The Chinese will "strive" to buy X amount of this and that. Both sides regard it as "important" to protect IP. There will be a "mechanism" to resolve disputes. Guess what? All this has been in place for 30 years and it hasn't worked.

 

3) Why are the Chinese promises to buy American goods backloaded onto 2021 and not in 2020? They likely realize they'll be dealing with a different president then and are just stringing Trump along until he's out of office. 

 

Greatest Beans Deal eveh!

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11 hours ago, Cryingdick said:

 

Then the tariffs will just get ratcheted up again. If US companies can enter China with out being forced to join with a Chinese firm that will steal their IP and then compete against them this is YUGE!

 

Well done Trump this is a massive and historical deal. Some estimates are this is going to add half a percent to the GDP others say more. There is enforcement built into this. China has come to the realization that Trump isn't going anywhere and if he did what follows would probably be even worse for them..

 

Hopefully the fed cuts rates and drops the dollar some more. Then the markets would explode upward. Dow at 29,000 and holding!

"We'll see"

"We'll see how it turns out"

 

I wouldn't crack the Champagne open just yet. "Let's just wait and see".

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5 hours ago, webfact said:

The centerpiece of the deal is a pledge by China to purchase at least an additional $200 billion worth of U.S. farm products and other goods and services over two years, over a baseline of $186 billion in purchases in 2017, the White House said.

This deal of course is not set in concrete.  The Chinese could back down any time they want and Trump would totally understand because it is after all only a deal, an agreement, a promise etc and in Trumps eyes that means nothing.

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Until Trump was ushered in to sign this "deal" before the Chinese subordinate representative, the last time I remember a nation's leadership prostrating and surrendering itself like this in its own country was aboard the battleship Missouri in Tokyo Bay in 1945.

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19 hours ago, snoop1130 said:

But it will leave in place 25% tariffs on a vast, $250 billion array of Chinese industrial goods and components used by U.S. manufacturers.

 

Evidence is mounting that these tariffs have raised input costs for U.S. manufacturers, eroding their competitiveness.

 

Diesel engine maker Cummins Inc (CMI.N) said on Tuesday that the deal will leave it paying $150 million in tariffs for engines and castings that it produces in China.

 

5 hours ago, Ricohoc said:

Lost on many is that there are still tariffs in place with this deal.  All of the tariffs were not rescinded.

Lost on many? Really? Whom is it lost on? Those who blindly believe what they are told without bothering to do any related reading at all? Around here, we call those types of people “republicans”

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17 hours ago, Tug said:

Imo a bunch of bs and btw how long is it going to take to payback the tax payers for the trump farm welfare plan of his creation huh?tis over twice the amount Obama used to bail out the auto makers !Trumps I’ll concived trade war has cost us plenty for a lousy return 

It would appear that China  has conceded little more than they were originally offering. Meanwhile the majority of the tariffs continue which have impacted US people is an estimated $560 average loss  for the last year and  $29 billion in farmer  bankruptcies.

The only thing "massive" about this interim deal is a  theoretical big pile of beans ! 

"Made in China 2025" is  what the  US is really  up against and basically powerless to  prevent it.

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11 hours ago, Kelsall said:

With this deal, all Americans owe the president a debt of gratitude.

 

Once again, thank you President Trump.

What for?wrecking the farmers markets they took years to build?or the bill we have to pay to support them as this trade fiasco went through?over twice the $ amount of the auto bailout under Obama (nessary imo)or perhaps it’s the extra money I have to pay when I buy things ?

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