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President Trump and Liu He, China’s top trade envoy, today (16th January) signed a Trade Deal that includes some significant economic changes to the relationship between the two countries, although many have pointed out that there are also significant omissions. It is a partial truce but the pact preserves the bulk of the tariffs on $360 billion of goods from China until Phase Two of the Agreement is agreed and signed.
Under the deal inked today, China has committed to buying $200 billion of American goods and services by 2021, although it is unclear what happens after 2021. China will relax licensing, inspection and registration rules affecting meat, poultry, pet food, seafood, animal feed, baby formula, dairy and biotech, viewed by the US as barriers to trade, and in turn the US is granting concessions to ensure Chinese imports are treated more fairly.
There are also provisions against hacking, intellectual property theft, including trade secrets, and counterfeiting, including protecting the US pharmaceutical industry from violation of patents and copycat products.
It also includes measures to stop forced transfer of American technology to Chinese competitors.
The financial sector has had changes that were confirmed, and credit card companies are now allowed to apply for licences in China, although there is no confirmation they will be granted. China has pledged not to devalue its currency to gain a competitive advantage, to be more transparent about its foreign exchange market dealings, and will be publishing quarterly its foreign reserves and exports of goods and services. (Most of these financial commitments were already part of its commitment to the International Monetary Fund and the Group of 20 commitments).
More transparency is to be welcomed. However it does not address China’s state subsidy of favoured industries, with a view to market domination, for example solar panels and steel.
It remains to be seen how the Chinese interpret this Trade Deal, and how it can be enforced. Unusually, dispute resolution is left to be sorted out by the parties themselves, rather than a neutral third party. If they cannot be resolved, more tariffs will come into effect and the other party promises not to retaliate with further tariffs. If the other party does retaliate, then the other side can withdraw from the whole agreement.
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