The Heat: China-U.S. Trade Deal
China has pledged to buy nearly $ 80 billion in additional industrial goods from the United States over the next two years as part of a trade war truce, a Reuters source said..
Under the terms of a trade deal to be signed in Washington on Wednesday, China will also buy $ 50 billion more in energy and increase purchases of US services by about $ 35 billion over the same two-year period, a source told Reuters..
According to a source close to the deal, the first phase agreement requires Chinese purchases of U.S. agricultural products to increase by about $ 32 billion over two years, or about $ 16 billion a year..
Combined with a US $ 24 billion agricultural export baseline in 2017, the total is close to the $ 40 billion annual target announced by US President Donald Trump..
The numbers, which are expected to be announced by the White House on Wednesday at a signing ceremony between Trump and Chinese Deputy Prime Minister Liu He, represent a staggering increase over recent Chinese imports of US manufactured goods, raising some skepticism as to how it will be. achieved.
Two other sources familiar with the first phase of the trade deal agreed with a rough breakdown of the terms of the purchases without providing specific numbers..
US Trade Representative Office spokesman was not available for prompt comment.
U.S. Trade Representative Robert Lighthizer called the deal on Monday «a huge step forward» for trade relations between the United States and China, and «indeed a very good deal for the United States». He told Fox Business Network that Beijing’s compliance will be closely monitored..
«We expect them to be in line with the letter of the law. We will initiate cases, we will take action against them if they do not.», – said Lighthizer.
When the Phase 1 trade agreement was struck on December 13, US officials said China had agreed to buy an additional $ 200 million in agricultural products, manufactured goods, energy and services over the next two years, up from the 2017 baseline..
Targets for four broad areas are announced, but details of specific products will remain non-public to avoid distorting markets..
Growth in sales of agricultural products by $ 32 billion compared to 2017 was confirmed by Miron Brilliant, head of international affairs of the US Chamber of Commerce, who spoke to reporters in Beijing on Monday..
Analysts and traders, seeing China’s ability to increase purchases of wheat, soybeans, sorghum, dry distillers and corn, questioned whether the Chinese market could handle such a significant increase. They believe a strong focus on US supplies could create risks of price and supply volatility for China..
Trump has largely advocated an increase in agricultural exports, which will benefit the mainstream political group that has been hit by retaliatory Chinese trade duties during its 18-month trade war with Beijing..
Company executives were eagerly awaiting details on what other US goods, other than agricultural products, China would buy in large volumes after the imposition of 18-month trade duties that halted investment in US businesses..
The $ 80 billion increase in industrial purchases includes significant purchases of cars, auto parts, aircraft, agricultural machinery, medical devices and semiconductors, one source told Reuters, without naming specific suppliers..
The planes are likely to be built by Boeing Co, the # 1 US exporter whose new sales to China have stopped in the past two years. It would be a welcome boon for the aerospace giant, whose stock and earnings have plummeted as its best-selling 737 MAX aircraft remains without flight access due to two fatal accidents in 2018 and 2019..
The source providing the procurement data expressed skepticism about Beijing’s promises of manufactured goods, as the US-China trade agreement does not address any non-tariff barriers that have kept these US goods from entering the Chinese market for decades, including due to procurement regulations, product standards and subsidies to Chinese government firms.
With soaring sales of Chinese cars and surplus domestic assembly capacity, it’s hard to see why China needs to buy significantly more US-made cars. Among the most popular US-made cars sold in China are BMW and Mercedes-Benz sports cars..
China also has major industrial policy goals to dominate manufacturing sectors themselves, in which it has pledged to boost U.S. purchasing, further fueling skepticism..
Many economists and pundits doubt that the Phase 1 trade agreement will be implemented in writing, despite what US officials say is an important condition for enforcing the deal..
This enforcement mechanism allows for the referral of complaints through increasingly active consultation with Chinese Vice Premier Liu He and US Trade Representative Robert Lighthizer..
If the US claim for non-compliance by China is not resolved, Washington will be eligible to re-impose tariffs on Chinese goods in proportion to the estimated economic damage. But nothing will stop China from retaliating by returning both sides to the current status quo, according to Reuters sources familiar with the deal..
Oil traders and analysts also question whether China will be able to purchase additional $ 50 billion in energy products, including crude oil, liquefied natural gas (LNG) and imports of petrochemical feedstocks such as ethane and liquefied petroleum gas (LPG)..
Beijing-based SIA Energy analyst Seng Yik Ti said the target «too aggressive and unlikely to be achieved».