What's in the US-China phase one trade deal?

The currency agreement contains pledges by China to refrain from competitive currency devaluations and to not target its exchange rate for a trade advantage.
The currency agreement contains pledges by China to refrain from competitive currency devaluations and to not target its exchange rate for a trade advantage.PHOTO: EPA-EFE
President Donald Trump shakes hands with Chinese Vice-Premier Liu He after signing the agreement.
President Donald Trump shakes hands with Chinese Vice-Premier Liu He after signing the agreement.PHOTO: AP

WASHINGTON (REUTERS) - United States President Donald Trump and Chinese Vice-Premier Liu He signed a deal on Wednesday (Jan 15) in the White House that cut some US tariffs on Chinese goods in exchange for Chinese pledges to purchase more American farm, energy and manufactured goods and address some US complaints about intellectual property practices.

Below are details of the deal released by the United States Trade Representative.

Beijing has not yet released a version of the deal in Chinese, after an extended translation process that continued until Tuesday night.

CHINA PURCHASES

China agreed to increase purchases of American products and services by at least US$200 billion (S$270 billion) over the next two years, over a baseline established in 2017, with increased imports of US goods and services to “continue on this same trajectory for several years after 2021”.

China bought US$130 billion in US goods in 2017, before the trade war began, and US$56 billion in services, US data shows.

China has committed to US$77.7 billion in additional manufacturing purchases over two years, up from the 2017 level, the text says, which will be a US$32.9 billion increase in 2020 and a US$44.8 billion increase in 2021.

That means China’s imports of US manufactured goods, such as industrial machinery, electrical equipment, pharmaceutical products, aircraft, vehicles, optical and medical instruments, iron and steel, solar-grade polysilicon, hardwood lumber, and chemical products, among other goods, will total at least US$120 billion in 2020 and at least US$131.9 billion in 2021, USTR said in a fact sheet on the trade deal.

China has committed to at least US$52.4 billion in additional energy purchases over the two years, from a baseline of US$9.1 billion in 2017. That will be broken into US$18.5 billion additional in 2020 and US$33.9 billion in 2021.

China’s imports of energy products from the US, such as liquefied natural gas (LNG), crude oil, and metallurgical coal, will total at least US$30.1 billion in 2020 and at least US$45.5 billion in 2021.

China will also purchase US$37.9 billion in services from US companies above the 2017 level over the two years, US$12.8 billion above the 2017 level in 2020 and US$25.1 billion above the level in 2021.

That means China’s imports of US services, such as financial services, insurance services, cloud services, and travel services, will total at least US$99.9 billion in 2020 and at least US$112.2 billion in 2021.

 
 
 
 

China “shall ensure” additional purchases of US agriculture products by US$32 billion over two years, the deal says, including US$12.5 billion above the corresponding 2017 baseline of US$24 billion in 2020 and US$19.5 billion above the baseline in 2021.

As a result, China’s imports of US agricultural products, such as soybeans, cotton, grains, meats, ethanol, seafood, and the full range of other agricultural products will total at least US$80 billion over the next two years. China will also strive to purchase an additional US$5 billion of agricultural products annually, USTR said.

The added purchases would result in an average annual total of about US$40 billion, a number Mr Trump has touted before. At the signing ceremony on Wednesday, he said China’s agricultural purchases could reach US$50 billion.

TARIFFS

As part of the agreement, the US will cut by half the tariff rate it imposed on Sept 1 on a US$120 billion list of Chinese goods, to 7.5 per cent.

US tariffs of 25 per cent on US$250 billion worth of Chinese goods put in place earlier will remain immediately unchanged.

These remaining US tariffs could be removed once the two sides conclude a phase two trade agreement, Mr Trump said on Wednesday. He said he did not anticipate needing to negotiate a phase three agreement.

Tariffs that were scheduled to go into effect on Dec 15 on nearly US$160 billion worth of Chinese goods, including cellphones, laptop computers, toys and clothing, are suspended indefinitely. China’s retaliatory Dec 15 tariffs, including a 25 per cent tariff on US-made autos, have also been suspended.

INTELLECTUAL PROPERTY

The deal includes stronger Chinese legal protections for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods, USTR said.

 

It 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.

China also agreed to refrain from directly supporting outbound investment aimed at acquiring foreign technology to meet its industrial plans – transactions already restricted by stronger US security reviews.

CURRENCY 

The currency agreement contains pledges by China to refrain from competitive currency devaluations and to avoid manipulating exchange rates for competitive advantage – language that China has accepted for years as part of its commitments to the Group of 20 major economies.

Any violations would be subject to the enforcement mechanism for the overall deal, and could trigger tariffs. Both countries also agreed to publish relevant data on exchange rates and external balances on a prescribed schedule, USTR said.

ENFORCEMENT 

The US and China will resolve differences over how the deal is implemented through bilateral consultations, starting at the working level and escalating to top-level officials.

If these consultations do not resolve disputes, there is a process for imposing tariffs or other penalties.

US Trade Representative Robert Lighthizer told reporters the US expected neither side would retaliate if appropriate action was taken as part of the process and following “consultation in good faith”.

CHINA FINANCIAL SERVICES

US officials said the deal includes improved access to China’s financial services market for US companies, including in banking, insurance, securities and credit rating services. It aims to address a number of longstanding US complaints about investment barriers in the sector, including foreign equity limitations and discriminatory regulatory requirements.

China, which has pledged for years to open up its financial services sector to more foreign competition, said the deal would boost imports of financial services from the US.