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It is expected that in the next 2 years U.S. exports to China will almost double as the “phase one” of the U.S.-China trade deal is “totally done”.
United States trade representative Robert Lighthizer said on Sunday that the “phase one” of the U.S.-China trade deal is “totally done”. Among several conditions, one of them is regarding China buying more of U.S. agricultural products. As per Lighthizer’s words, the U.S. exports to China will be doubled from now on. He added that the exact date and location for signing the agreement are to be determined.
The thing is, the tensions among the two countries were rapidly growing during the last two and a half years and only after Washington imposed huge tariffs (and threatened to raise them and impose new ones), Beijing started to soften its answers and show some will to negotiate. The deal was announced last week on Friday and will include reducing the U.S. tariffs on Chinese goods as well. China, on the other hand, pledged to buy approximately $200 billion worth of, already mentioned, U.S. agricultural products. Lighthizer stated that these purchases will increase by $40 billion or even $50 billion in the next few years. Just for comparison, last year, the U.S. exported around $24 billion in farm products to China.
Lighthizer, however, commented that the success of the deal depends on further Beijing decisions.
“Ultimately, whether this whole agreement works is going to be determined by who’s making the decisions in China, not in the United States. If the hard-liners are making the decisions we’re going to get one outcome, if the reformers are making the decisions, which is what we hope, then we’re going to get another outcome.”
USMCA Deal Still to Be Arranged
He mentioned that Friday was the “most momentous day in trade history” but not just of the trade deal with China, but also because the White House sent a revised U.S.-Mexico-Canada Agreement to Congress for approval votes. Per his words, the two trade deals together cover some $2 trillion in overall trade.
The USMCA is meant to replace the 26-year-old North American Free Trade Agreement and now has run into last-minute snags as Mexico’s chief negotiator, Jesús Seade, has objected to congressional language on implementation of the trade deal that calls for the designation of up to five U.S. experts to monitor Mexico’s compliance with labor reforms. Two officials are to meet today.
Will China Halve Its Current Export to the U.S.?
However, not everything is nice and dandy. The U.S.-China trade deal leaves a large American deficit and a permanent collision course. When we look at the latest numbers from the two countries’ trade, there comes a question regarding the balance of bilateral trade accounts.
China’s surplus on its U.S. goods trade in the first ten months of this year was $294.5 billion and amounted to 40% of America’s total trade gap.
During the same period, Beijing cut U.S. exports to China by 14.5% to $87.6 billion. For comparison, Chinese exports to the U.S. were more than four times larger at $382.1 billion.
So, if Beijing increases its purchasing of U.S. goods and services by $200 billion as promised, it would have to halve its current exports to the U.S. ($462.4 billion) to balance the sheet.
What will most probably happen is that the U.S. will continue to run huge assets transfers to China. Those are, as already known, sponsored by America’s increasing net foreign debt and will show as net foreign assets on China’s books.
Asian stocks reacted positively by jumping amid the good news. The Shanghai Composite closed 0.56% higher on 2,984.39, as the Shenzhen Component jumped 1.54% to 10,158.24 and Shenzhen Composite bounced 1.56% to 1,686.41. Hong Kong’s Hang Seng index, however, closed down 0.65%.
Australia’s S&P/ASX 200 led stocks in the region, jumping 1.63% to 6,849.70, while Japan’s Nikkei 225 edged down 0.29% to 23,952.35 after a strong rally on Friday. In South Korea, the Kospi edged down 0.10% to 2,168.15.