The economic conflict that stole headlines in 2019 finally has been showing signs of apparent easing. The prolonged tension of the trade war between the United States and China, that engulfed not just the two biggest economies of the world, but the entire global business unit seems to be settling- hints the signing of the Phase one of the 'landmark' trade deal.
Signing of the Phase One Trade Agreement
On 15 January 2020, United States and China took a momentous step as President Donald Trump signed an interim trade agreement with China, marking the first tangible sign of cutback in a trade dispute. Interestingly, this is a step that the US has never undertaken in the past with China. According to the trade deal:
The trade deal was signed in Washington and is being tagged as a very important and remarkable occasion by Mr Trump, countries and businesses alike. Mr Trump believes that the deal is a “great deal for both countries” after he signed “a landmark agreement” along with Chinese Vice Premier Liu He. Amid lawmakers, corporate executives and administration officials., the 86-page agreement is inclusive of commitments from China that are based on tighter intellectual property protections, a better open financial sector, China’s American agricultural purchases and better check on currency movements.
Sneak Peek of US and China
We will further break down the trade deal for our readers to understand the holistic view it received, but before it won’t it be interesting to take a sneak peek into how America is currently doing? According to Vice President Mike Pence-
- America is experiencing an economy that has created more than 7 million jobs
- The unemployment rate is at a 50-year low
- The average American’s household income has risen by more than $5,000
On the other side, the second largest world economy, China-
- Is a large and growing market for US firms
- According to the International Monetary Fund (IMF), economic growth seemed to be moderating, and was projected to be 6.2% in 2019
- Private consumption, services, and innovation are main drivers currently needed to drive economic growth
Breaking Down the Phase One Trade Deal- The Good
The much-awaited trade deal has been widely welcomed by businesses, investors, and policymakers alike. All of these parties had warned that the already prolonged trade deal will further take a toll on tariffs and impact global supply chains through higher costs and cast deep uncertainty on business plans.
Economists across the world have been reviewing the trade deal as good news for the U.S. and the world economy, especially with China vouching to be open for further easing and extending its financial-services sector. This is believed to be a boon for exporters. Moreover, American firms will not be pressurised to share their technology as a condition of doing business in China.
On another good note, the agreement has been fairly successful in removing the downside risk of a never-ending escalation of tariffs imposed by both the countries on each other’s imports, which might have a positive impact on the economic growth.
On this note, it should be noted here that the global economic growth is projected to pick up to 3.4 per cent in 2020, reflecting an improvement in global economic performance from 2019.
Breaking Down the Phase One Trade Deal- The Uncertainty
Before diving down this segment, it will be interesting to note that Mr Trump labelled the trade deal as a step “toward a future of fair and reciprocal trade”. He believes that both the giant economies are joining hands to deliver a future of economic security and justice for Americans. The “tough, honest, open, and respectful” negotiations, he believes should have happened 25 years ago!
On the contrary, a wide array of market experts and economists have noticeably been sceptical about the Phase One deal. For example, some believe that the concessions agreed upon might not rationalise the costs that have heaped from tariffs.
Moreover, few could not but help noticing the absence of President Xi Jinping from the occasion. Instead, he was represented by Vice Premier Liu He and few other Chinese representatives including Ambassador Cui. His absence failed to convince a few analysts that the deal is a sturdy and promising one.
While a few looked at the deal to be propaganda for the upcoming US Presidential Election, others were not convinced that a vaguely promised Phase Two will be signed. Mr Trump stated that the second deal would happen (if it has to pertaining to other conditions) after the election period. One should note that massive subsidies for state industry and forced technology transfer depend heavily on the second deal.
2020 may have started on a positive note with minor criticism on the trade deal, but one aspect is clear- any enhancement, good or bad, on this economic war will bring changes to nations alike. Whether this is an election propaganda, or the biggest economies will be pally in trade terms- time and figures will show.
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