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The United States and China are taking a step towards trade peace after 18 months of economic conflict.
President Donald Trump and China's chief trade negotiator Liu He signed a modest deal on Wednesday that would ease some US economic sanctions against China and prompt Beijing to buy more American agricultural products and other goods. The deal would alleviate tensions in a struggle that is slowing global growth, hurting American manufacturers and hurting the Chinese economy.
However, the Phase 1 agreement would scarcely force China to make the major economic changes, such as the reduction in unfair subsidies to its own companies, that the Trump administration sought at the start of the trade war by imposing tariffs on Chinese imports in July 2018 ,
Details of the agreement should be released on Wednesday.
Larry Kudlow, Trump's main economic advisor, said the agreement confirms the president's strategy of using tariffs in trade negotiations, if not in every case. "I think he was right about China," said Kudlow. "I think the tough tariffs have harmed their economy and made it much more accessible."
Most analysts believe that a meaningful solution to the main US claim – Beijing is using predatory tactics to supplant America's technological leadership – could require years of controversial discussions. Skeptics say a satisfactory solution is next to impossible given China's ambitions to become the world leader in advanced technologies such as driverless cars and artificial intelligence.
In this first phase, "the fundamental causes of trade and economic tensions between the two sides, which will continue to consolidate, are rarely addressed," said Eswar Prasad, economist at Cornell University and former head of China at the International Monetary Fund.
The more difficult questions are expected to be taken up in future rounds of negotiations. However, it is unclear when these talks could begin, and few observers expect much progress before the November presidential election.
"Phase two – I wouldn't be waiting on the phone," said John Veroneau, who was President of George W. Bush as a US trade official and is now co-chair of international trading practice for the Covington & Co law firm. Burling. "This is probably a 2021 issue."
The United States dropped plans to introduce additional $ 160 billion in import tariffs and halved existing tariffs on China's $ 110 billion goods from China to 7.5 percent.
Beijing agreed to significantly increase its purchases of US products. According to the Trump administration, China should buy $ 40 billion a year for agricultural products – an ambitious goal for a country that has never imported more than $ 26 billion a year for agricultural products.
Business is perhaps most remarkable for what it doesn't do. It leaves tariffs on Chinese imports of around $ 360 billion – a level of protectionism that would have been unthinkable before Trump took office.
Beijing's retaliatory duties affect more than half of America's exports to China. The average U.S. tariff on Chinese imports rose from 3% in January 2018 to 21%.
The government argues that the deal is a solid start, including China's commitment to do more to protect intellectual property, force foreign companies to hand over sensitive technology, and refrain from manipulating their currency lower to benefit Chinese exporters , Before signing on Wednesday, the finance department on Monday gave up China's designation as a currency manipulator.
By maintaining significant tariffs on Chinese imports, the government remains leverage to force Beijing to meet its commitments – which the US has failed to do for decades, according to the United States.
The government claims that the first phase, however narrow, is a major breakthrough.
Derek Scissors, China specialist at the American Enterprise Institute, said the trade war had already given Trump benefits, even if he hadn't forced Beijing to make major changes to its economic policy: Trump's tariffs have reduced Chinese exports to the U.S. and narrowed America's trade deficit with China.
The president has long viewed the trade gap between the United States and Beijing as a sign of economic weakness, although many economists disagree. A broad trade deficit can actually reflect economic strength, since a country's consumers feel comfortable and confident that they can spend freely – both for imported and for home-grown goods.
This year, the U.S. trade deficit with China decreased 16% year over year, or $ 62 billion, to $ 321 billion. The deficit will continue to narrow as Beijing delivers on its pledges to buy more American imports dramatically.
Trump's tariff increase has proven to be a headwind for China's economy, which has already slowed down despite the damage being less than expected. According to Chinese customs data, global Chinese exports rose 0.5% in 2019 despite a slump in sales to the United States.
Chinese exporters responded to Trump's tariff increases by shipping goods through other countries to the United States and increasing sales to Asia, Europe and Africa. The government saw double-digit growth in exports to France, Canada, Australia, Brazil and Southeast Asia in 2019.
Economists said the tariff war slowed Chinese growth, which hit a 6% decade low in the quarter ending September, by only 0.6 percentage points. Weak domestic demand and the slowdown in a construction boom have done more harm.
Joe McDonald, AP Business Writer in Beijing, and Darlene Superville, Associated Press, contributed to this report.