What if they announced a Part 1 agreement in the U.S.-China trade war but nobody could figure out what if meant if anything?
Stocks would go nowhere. The Standard & Poor’s 500 gained all of 0.1% today and the Dow Jone Industrial Average matched that big move with its own 0.1% climb. The NASDAQ Composite moved ahead 0.20% and the Russell 2000 small cap index fell 0.46%. The iShares MSCI Emerging Markets ETF (EEM) lost 0.2%.
So why the lack of gains or losses on the news?
Today at a press conference During, Chinese officials said they were working to set a date to sign a Part 1 trade deal. According to Beijing, the deal would see the U.S. lift existing tariffs on Chinese goods in phases.
A half-hour later, President Donald Trump tweeted that the two countries had “agreed to a very large Phase One deal with China,” but, he continued, existing tariffs on Chinese exports would remain in place. “The Penalty Tariffs set for December 15 will not be charged because of the fact that we made the deal. We will begin negotiations on the Phase Two Deal immediately, rather than until after the 2020 Election. This is an amazing deal for all.”
With the passage of time today, exactly what might be in the agreement didn’t get any clearer. The office of the U.S. Trade Representative said that as part of the deal China had agreed to make “substantial additional purchases of U.S. goods and services in the coming years.” How much? When? Over how many years? With what consequences if China failed to live up to its commitment? Though the Chinese confirmed they had struck an agreement with the United States, they would not confirm the amount of agricultural purchases involved. Chinese officials also noted that the agreement was subject to translation and legal review, with arrangements to sign it yet to be worked out. A deal between the United States and China fell apart in May over, ostensibly, translation disagreements.
At the conclusion of the Chinese press conference, the Office of the U.S. Trade Representative put out a statement detailing that both sides had “reached an historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.” What reforms? With what sort of an enforcement mechanism?
As part of the deal, China“The United States will be maintaining 25% tariffs on approximately $250 billion of Chinese imports, along with 7.5% tariffs on approximately $120 billion of Chinese imports,” the office of the trade representative said.
According to an analysis by Capital Economics, the USTR’s Section 301 tariff updates would reduce the average tariff on Chinese imports to 15.5% from 17%. This, however, would still be “roughly double the average tariff rate at the beginning of 2019.”
And, of course, nothing has been signed yet.
Some Republican senators and the U.S. Chamber of Commerce, while welcoming the news, said that the deal as presented didn’t go far enough. “We urge the administration to keep its eyes on the prize,” said Myron Brilliant, head of international affairs, in a statement. “We call upon both governments to continue working diligently toward a final agreement within six months.”
