WASHINGTON (Reuters) – The U.S.-China trade war will enter a new, quieter phase on Wednesday as U.S. President Donald Trump and Chinese Deputy Prime Minister Liu He sign a first trade agreement aimed at stopping Chinese purchases from going to USA-made products to increase significantly. agricultural goods, energy and services.
The phase 1 agreement provides for an 18-month wage dispute between the world's two largest economies, costing hundreds of billions of dollars in goods, churning the financial markets, uprooting the supply chains, and slowing global growth.
Trump and Liu are said to sign the 86-page document at an event in the White House before over 200 guests from business, government, and diplomatic circles are invited.
A translation of the text into Chinese was completed late Tuesday afternoon when Liu met with US sales representative Robert Lighthizer.
Trump has already started promoting the trade deal as the centerpiece of his 2020 reelection campaign and calling it a "big beautiful monster" last week at a rally in Toledo, Ohio.
"Our farmers will do it. I keep saying," Buy bigger tractors, buy bigger tractors, "Trump said.
The centerpiece of the deal is China's pledge to buy additional $ 200 billion in U.S. goods in two years to address a $ 420 billion bilateral U.S. trade deficit in 2018.
A source informed about the agreement told Reuters that China will purchase additional $ 80 billion of U.S.-made goods, including planes, cars and auto parts, agricultural machinery, and medical devices, over the course of the biennium.
Beijing will increase energy purchases by around $ 50 billion and service costs by $ 35 billion, while agricultural purchases will increase by $ 32 billion in the two years compared to U.S. exports to China in the Year 2017, the source said.
Combined with $ 24 billion in agricultural exports in 2017, the $ 16 billion annual increase corresponds to Trump's goal of making $ 40 billion to $ 50 billion a year of agricultural sales to China.
Although the deal could give farmers a big boost, aircraft maker Boeing (BAN), American automakers and heavy machinery manufacturers, some analysts question China's ability to redirect imports from other trading partners to the United States.
“I think a radical shift in Chinese spending is unlikely. I have little expectations of achieving the set goals, ”said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis. "But I think all of the negotiations have moved football forward for both the US and China."
TARIFFS TO STAY
The December 1 phase 1 deal lifted planned U.S. tariffs for cell phones, toys and laptops made in China and halved the duty rate to 7.5% for other Chinese goods worth around $ 120 billion, including flat-screen TVs, Bluetooth headphones and footwear.
But 25% tariffs will be imposed on a huge range of $ 250 billion industrial goods and components used by US manufacturers.
There is growing evidence that these tariffs have increased input costs for US manufacturers and reduced their competitiveness.
Diesel engine manufacturer Cummins Inc (CMI.N) said on Tuesday that the agreement will result in the payment of $ 150 million in duties for engines and castings made in China.
The company issued a lukewarm declaration of consent on Tuesday: "We think this is a positive step and remain optimistic that all parties will stay at the table to find a way to eliminate all the tariffs that have been introduced."
Lighthizer and Mnuchin have decided to stamp out proposals that allow the US and China to consider further abolishing tariffs after the November election in the United States. They made a joint statement that there were no written or verbal agreements for future tariff reductions.
Mnuchin later told reporters that Trump could consider a tariff cut if the world's two largest economies act quickly and sign a phase 2 follow-up agreement.
KEY PROBLEMS UNTAKED
The agreement includes commitments from China to ban the forced transfer of American technology to Chinese companies and to increase the protection of US intellectual property.
However, there is still a long way to go to address the U.S. core complaints about China's trade and intellectual property practices, which prompted the Trump administration to pressure Beijing to make changes in early 2017.
The agreement does not contain provisions to curb rampant state-owned subsidies blamed by the government for steel and aluminum overcapacity that threaten the industry from aircraft to semiconductors.
It also doesn't address digital trade restrictions and China's stringent cyber security regulations that have hindered US technology companies in China.
Mnuchin and Lighthizer said these issues were the United States' top priorities for phase 2 negotiations with China.
FINANCIAL SERVICES, CURRENCY, ENFORCEMENT
As part of the Phase 1 deal, China has agreed to further open its financial services sector to U.S. companies and to refrain from deliberately pushing its currency down to gain a trade advantage. The latter prompted the Treasury to drop its currency manipulator label on Beijing.
While China has made such pledges in the past, a key difference that the Trump administration is announcing is an enforcement mechanism to ensure disputes are met and resolved.
Enforcement is based on the reintroduction of tariffs when disputes cannot be resolved, bringing the two countries back to the current status quo.
(This story has been revised to add the name of the Chinese Vice Premier in the first paragraph.)
Additional reporting by Andrea Shalal, Echo Wang, Alexandra Alper and Herb Lash in New York; Edited by Simon Cameron-Moore