The World Economy grins as US and China reach Trade Deal

The Consensus

China and the US have made a significant and historical breakthrough in their phase one trade concessions. It’s exciting as US-China trade relations have not been smooth in the past. What is now apparent is that the previous trade wars could be history. The deal takes into consideration a broad range of issues, including tariff respite for China, and agricultural purchases for the US.

The agreement touches on the need for structural reforms on the economic and trade transactions. As such, issues like intellectual property, agriculture, finance, and technology transfer in China are under consideration.

What’s in the Details

As of now, the details remain rather scanty, and full information regarding the whole deal is not available. The news started trickling in on December 13th. But journalists could only access just a glimpse of the entire concession document.

However, the available information states that the US will be scrapping tariffs on goods from China, albeit in outlined stages. President Trump has also announced the same news via his twitter handle.

The imposition of these tariffs on China as a result of significant findings of section 301 audit/investigation. Several questions regarding policies and practices related to issues such as intellectual property and technology transfer are the reasons for these charges.

According to the agreement, the US will maintain 25% tariffs on roughly $250billion of all Chinese imports. There will also be a significant cut to existing duties on an extra $120 billion to 7.5%.

What China Has To Do

The agreement states that China has to significantly increase its purchase of agricultural products from the United States. China’s vice minister of agriculture has publicly supported this. Of course, he has not come out to state clearly by how much, but the deal is unquestionably on course.

President Trump validates this part of the agreement by stating that China has to play its role. And this is by purchasing a more substantial chunk of American agricultural products. It’s the only way for the deal to be seen to be working.

How Tight Is the Agreement?

There are visible signs that this is a done deal. First, the agreement is in writing, which shows that for once, the parties are entirely in consensus. Reneging on a formal contract is not quite easy. Then, China is keen to have the tariffs scrapped, while the US is eager to have its crops on the Chinese market.

Secondly, the agreement consists of a powerful dispute resolution mechanism. Its primary purpose is to ensure that the deal is not only implemented, but also done more efficiently.

Last but not least, both the US and China are of the same accord in terms of initiating the required changes to the intellectual property.

Before It Begins to Roll

Although phase one of the trade deal is done and dusted, both of these countries will have to create a more detailed translation of the text. Then, there have to be legal reviews and an understanding of the implications of the agreement. After that, the appending of signatures can take place.