Analysis – President Trump and Vice Premier Liu He Announce “Phase One” Trade Agreement – Video


Lots of dragon-dancing with a very hungry panda.

President Trump, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Mnuchin gathered with their Chinese counterparts in the Oval Office for a lengthy  announcement of “phase-one” of a U.S-China trade agreement.  Vice-Premier Liu He leads the Chinese delegation.  [No point sheet on USTR website yet]  According to the presser:

Phase One has reached ‘agreement in principle‘, and includes: Intellectual Property issues; Banking and Financial Services to include currency devaluation; and major agricultural purchases ($50 billion +).  There will be several phases, and each phase will have an individually tailored enforcement mechanism. [Note: this approach sounds similar to the ‘six sectors and stages’ USTR Lighthizer discussed in March 2019.]

The Phase One agreement details still have to be put on paper over the next five to six weeks.  The U.S. and China are hopeful to have ‘phase one‘ complete by December. In exchange for current AG purchase commitments, and as an act of good faith while phase-one is finalized, the U.S. will suspend the tariff rate increases scheduled to take effect on October 15th. The tariff increase from 25% to 30% has been ‘suspended‘.

The scheduled U.S. tariff increases for December are still planned; however, they will be assessed as part of the ongoing negotiations.  Meanwhile, touchy issues like tech company Hauwei, 5G, telecom and the Chinese firms on the U.S. blocked “entity list” (ie. trade ‘blacklist’) are not part of the discussions.  Those issues fall under U.S. National Security and will not be part of any ongoing trade negotiations.

[Video Below]

Overall I wouldn’t read too much more into this than appears on the surface.

China needs to buy food.  There are a limited number of export markets that can generate the scale of agricultural imports that China demands.  A hungry Chinese people only make the issues in/around Hong Kong worse.   Pandas can become very aggressive when hungry….  China needs to buy food.

President Trump wants to sell food to help the U.S. farmers; mostly operating under BIG AG multinational contracts (ie. contract farming).   The scale of Chinese purchases is too significant to overlook….  So Trump trades the suspension of a 5% tariff to gain $50 billion in farm purchases.  That’s most of the visible picture on this deal.

That said…. as USTR Lighthizer has previously stated, the issues of consequence are going to be in the enforcement mechanisms.  An agreement on IP and Banking/Financial Services is great, but the part that matters is the enforcement mechanism.  I wouldn’t put too much faith in Phase-1 being successful until we see some indication that China will acquiesce to U.S. enforcement provisions.

If you say: “China will never comply with U.S. enforcement”… well, I wouldn’t disagree; nor would USTR Lighthizer… he’s admitted as such.  So is a deal really possible?  Too soon to know, and too few details.

Panda gets food. Farmers get sales.  That’s the only known takeaway so far.

All other pro -vs- con analysis (predictions and projections) are for domestic audiences, politics and stock market consumption.  I still think an actual deal is unlikely.

Right now we’ve got happy pandas and happy farmers…. everything else is TBD.

xi jinping letter to president trump

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.