Trump Signs 'Phase 1' China Trade Deal, But Most Tariffs Remain In Place

Jan 15, 2020
Originally published on January 15, 2020 2:07 pm

Updated at 2:07 p.m. ET

A year and a half after launching his trade war against China, President Trump signed a partial truce on Wednesday.

"We mark more than just an agreement. We mark a sea change in international trade," Trump said during a White House signing ceremony. "At long last, Americans have a government that puts them first."

The president agreed to relax some of the tariffs he imposed on Chinese imports. In exchange, Beijing has agreed to buy more American products and make other changes.

"This is a big win for the president," Treasury Secretary Steven Mnuchin told Fox News, while conceding the "Phase 1" agreement does not achieve all of the reforms the administration initially sought.

"It's not everything," he acknowledged. "There will be a 'Phase 2.' But this is the first time we've had a comprehensive agreement with China."

As part of that deal, China has promised to provide more protection for American companies' intellectual property and to stop requiring U.S. companies to share their technology as a cost of doing business in China.

Beijing has a history of backsliding on such pledges. But the administration expressed confidence that the terms of this deal are enforceable.

"This agreement will work if China wants it to work," said U.S. Trade Representative Robert Lighthizer. "They expect and we expect it to be enforced to the letter."

The administration agreed not to impose tariffs last month on some $160 billion in Chinese imports — including popular consumer items such as cellphones and laptops — as part of the Phase 1 agreement. It also reduced the tariff rate on another $112 billion worth of goods from 15% to 7.5%.

But steep 25% tariffs remain in place on much of what the U.S. buys from China, including components that American factories use to assemble finished products. While Trump insists that China is paying those tariffs, numerous studies have found the costs are largely borne by American importers.

"This continues to be a drag on the manufacturing sector, which really has not been doing well in the last couple of quarters," said Syracuse University economist Mary Lovely.

Farmers also took a hit during the trade war, as China cut back sharply on its purchases of U.S. agricultural products.

"It's been a long haul, and the lack of certainty is probably the most challenging portion of this," said Kristin Duncanson, who raises soybeans, corn and hogs in south central Minnesota. "We can weather the weather. We know how to do that. It's weathering the politics that's the tough part."

Duncanson estimates her soybean crop lost 30% to 40% of its value during the trade war, thanks to low prices and the lack of Chinese demand. That loss was only partially offset by federal aid for affected farmers. Duncanson is hoping for a rebound once the trade agreement is signed.

"We're optimistic that signing the agreement will reopen some opportunities, especially for the Upper Midwest," she said. "But I'm also a realist enough to know until those beans are actually shipped to customers that we can't count our chickens before they're hatched."

The administration says China has pledged to boost its purchases of U.S. goods and services over the next two years by $200 billion over 2017 levels. That would represent an increase of more than 50%.

That includes $32 billion in additional agricultural purchases, $78 billion in manufactured goods, $52 billion in energy products, and $38 billion in additional U.S. services.

"We're delighted that the Chinese consumers will now enjoy the greater access to the best products on earth: those made, grown and raised right here in the USA," Trump said.

Lovely said it's possible for China to increase its purchases by $200 billion, but warned it could have a disruptive effect on global trade flows.

"This should be giving our other trade partners some serious anxiety because one way [for China] to achieve those targets is simply to stop buying from other countries and shift purchases to the U.S.," she said.

China's Vice Premier Liu He joined Trump at the White House for the signing ceremony.

While the agreement leaves major economic disputes between the two countries unresolved, Lovely said the 18-month trade war has allowed both sides to send a message.

"The U.S. is going to use whatever muscle it can to get what it wants," she said. "On the other hand, it's also shown the United States that China's going to be very hard to bully."

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DAVID GREENE, HOST:

Well, a year and a half after launching his trade war against China, President Trump is set to sign a partial truce today. He's going to be joined by China's vice premier at a signing ceremony at the White House. Trump has agreed to relax some of those tariffs he imposed on Chinese imports in exchange for Beijing's agreement to buy more American products and also make some other changes. NPR's Scott Horsley has the details on this and joins us this morning. Hey there, Scott.

SCOTT HORSLEY, BYLINE: Good morning, David.

GREENE: OK. So important here - this deal is being called a phase one trade agreement, which I think suggests to all of us that this might not be the last word.

HORSLEY: That's right. It does not address some of the structural issues that the administration has complained about in China's economy. Those are left for phase two negotiations. But the administration says this deal does include some more safeguards for U.S. companies' intellectual property in China for their technological knowhow. In an interview with Fox News, Treasury Secretary Steven Mnuchin conceded that the deal doesn't get everything the administration wants, but he characterized this as a victory for President Trump.

(SOUNDBITE OF TV SHOW, "SUNDAY MORNING FUTURES")

STEVEN MNUCHIN: This is really a historic transaction. Now, it's not everything, and, as we've said, there will be a phase two. But this is the first time we've had a comprehensive agreement with China. This is a big win for the president.

HORSLEY: And the administration also boasts that China is going to buy a lot more U.S. goods and services, some $200 billion in additional imports, over the next couple of years compared to what Beijing was buying back in 2017 before the trade war began.

GREENE: Can we focus on that $200 billion number? I mean, that would be a massive increase in U.S. exports going to China, like, more than 50%, right? I mean, is that realistic?

HORSLEY: It's certainly a stretch, and it would likely require China to shift some purchases away from other countries, which they might not be too happy about. China is expected to buy a lot more factory products under this deal, more energy from the United States, more American services and, of course, more agricultural products. You know, farmers took a big hit during the trade war when China dialed back its purchases of American commodities. Kristin Duncanson, who raises soybeans in south central Minnesota, told me her crop lost at least a third of its value when China took its business elsewhere. So she's really hoping for some rebound thanks to this phase one trade deal.

KRISTIN DUNCANSON: We're optimistic that signing the agreement will reopen some opportunities, especially for the upper Midwest. But I'm also a realist enough to know until those beans are actually shipped to customers that we can't count our chickens before they're hatched.

HORSLEY: I asked Duncanson if she's planning to plant more soybeans this spring in anticipation of bigger Chinese purchase orders. She told me she might shift some of her acreage in anticipation of that. But for the now, she's kind of in a wait-and-see mode.

GREENE: To see what the impact might be for her. The tariffs we've talked about - I mean, all the tariff threats, the tariffs going back and forth between the two countries, I mean, we should say a lot of Chinese goods are still going to be subject to import taxes here, right?

HORSLEY: That's right. Hundreds of billions of dollars in Chinese goods are still going to be hit with a 25% import tax. And that includes a lot of components that U.S. factories assemble into finished products. So that's been a challenge for the American manufacturing sector. Factories have been in a slump since August. Syracuse economist Mary Lovely said that despite this phase one agreement, there's just not a lot of tariff relief on the horizon.

MARY LOVELY: There's been a lot of hurt all across the economy, and I don't think we've gotten much out of this. And it's my personal hope that we turn back to working with allies to make the sort of slow but steady progress that we need to make to improve this relationship over the longer term.

HORSLEY: And there was a quick step in that direction when the U.S. announced a deal with Japan and the European Union to challenge some Chinese subsidies.

GREENE: NPR's Scott Horsley for us this morning. Scott, thanks.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.