China Agrees to Increase Imports from U.S. by $200 Billion in ‘Phase 1’ of Trade Deal

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After two years of trade wars and what seemed like never ending tariffs being levied against China by the U.S., and vice versa, a groundbreaking deal has been made which is projected to dramatically increase U.S. export to China and protect American intellectual property… and that’s just ‘Phase One.’

Markets are up today as President Donald Trump and Chinese President Xi Jinping sign what Trump has dubbed the long awaited “phase one” of a new trade deal with China.

According to an analysis from CNN, the trade deal signals a “pause” to the ongoing trade war, and “commit[s] Beijing to buy $200 billion in US agricultural, auto, manufacturing and aviation goods.” The deal also allows Trump and China to keep the current tariff’s on nearly $380 billion worth of goods and services in place.

Yahoo Finance broke down the additional purchases China pledged to make over the course of the next two years. “Beijing will make at least $32.9 billion in additional agricultural purchases over the next two years… an additional $77.8 billion in U.S. manufactured goods, $52.4 billion in U.S. oil and gas purchases, $37.9 billion in financials and other services, and increase protections for U.S. intellectual property.”

On the issue of intellectual property protection, the agreement reads, American companies will “be able to operate openly and freely in the jurisdiction of the other Party without any force or pressure from the other Party to transfer their technology to persons of the other Party.” Within 30-days of signing, China must create a plan to “strengthen intellectual property protection aimed at promoting its high-quality growth.”

It’s estimated that intellectual property theft by Chinese companies, enabled and encouraged by Beijing, costs American businesses at least $225 billion per year with estimates hitting as high as $600 billion a year. 

If the trade export estimates are correct, then U.S. exports to China will sore to $260 billion a year in 2020, and $310 billion in 2021. Currently, yearly U.S. exports to China hovers around $120 billion.

This deal is expected to be a huge relief to American farmers, who have been hit hard after agricultural exports dried up amid new tariffs levied by China in response to Trump’s tariffs.

Many worry that the intellectual property proactive measures put in place may not be enough, as the deal does not leave much room for punitive punishments for failing to abide by the provisions in the agreement. If a consensus on a trade or IP dispute between the United States and China is not met, the only recourse would be exiting the deal, according to Yahoo. 

“The signing of the Phase 1 deal would represent a welcome, even if modest, de-escalation of trade hostilities between China and the U.S.,” said Eswar Prasad, a Cornell University economist and former head of the International Monetary Fund’s China division. “But it hardly addresses in any substantive way the fundamental sources of trade and economic tensions between the two sides, which will continue to fester.’’

Market Watch

The effectiveness of the deal will depend largely on China’s willingness to enforce its promises; the cost of intellectual property theft is far greater than any amount of soy the Chinese could buy from American farmers.

President Trump called ‘Phase One’ “one of the greatest trade deals ever made” in a tweet.

Phase two of the three phase plan is expected to come before the November election, according to statements made by Trump.