“Phase One” Agreement Between the United States and China Reached
On Friday, October 11, 2019, President Trump announced that a “phase one” agreement had been reached with China. Most notably, the U.S. agreed to suspend its plan to increase tariffs from 25% to 30% on $250 billion in Chinese goods, which had been scheduled for October 15. In return, China has agreed to purchase between $40 to $50 billion worth of U.S. agricultural products. The agreement also includes changes to sanitary, phytosanitary, and biotechnology issues that should ease the burdens U.S. farmers face when exporting to China.
The deal is agreed to in principle, but subject to “getting everything papered.” Other aspects of the deal include technology transfer, financial services, and intellectual property. Without any documentation or draft text it remains unclear what exactly these additional provision will entail.
The agreement has had the effect of reducing tensions between the two countries. With President Trump facing an election in 2020 and China under scrutiny for its slowing economy, traction on the trade front, limited as it may be, may be seen as politically necessary by President Trump and Chinese President Xi Jinping. That said, there are virtually no details available on what is in the agreement, and how or whether the Chinese would implement any changes in their domestic law. Indeed, it was the unwillingness of hard line officials in China to commit to certain changes in law that derailed a draft agreement a few months ago. Skeptics on the U.S. side are wondering as well whether the written agreement will be much more than a commitment to purchase more farm goods, leaving the hardest issues to be resolved at a later point.
Absent from the agreement is any change regarding the Trump Administration’s treatment of Huawei, which USTR Lighthizer stated was a “separate process,” or a decision to rescind the tariff increases currently scheduled for mid-December. Treasury Secretary Steven Mnuchin said Monday that he expects the tariffs to be imposed if there is no agreement at that point.
President Trump estimates this “phase one” agreement will be papered in the next four or five weeks.