China and U.S. Sign Phase One, But Plenty of Problems Lie Ahead

The U.S .and China signed the ‘Phase One’ trade agreement, after years of a bitter trade war between the sides. Still, the accord is only a first step, as some U.S. tariffs will remain in place.
Kenny Fisher
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The United States and China signed the ‘Phase 1’ agreement on Wednesday, a  major breakthrough in the ongoing trade war between the two countries. The trade dispute has raged for two-and-a-half-years and has triggered a global recession. Still, it is much too early to take out the champagne bottles, despite President Trump boasting that “this is the biggest deal anybody has ever seen.”

The deal is clearly a victory for Trump, one that he is sure to tout in an election year. After rounds of fruitless negotiations and punishing tariffs between China and the U.S., there is no denying that the sides have achieved some progress. At the same time, Phase One does not address the major trade irritants and does not fully eliminate tariffs between the world’s largest two economies. The U.S. wants to move quickly and negotiate a ‘Phase Two’ deal with China. Ahead of the signing ceremony, Treasury Secretary Steven Mnuchin said that “if the president gets a phase two in place quickly, he’ll consider releasing tariffs as part of phase two”. China, however, does not appear to share this enthusiasm, as the  Chinese media did not even mention Phase Two in its coverage of the Phase One signing.

Under the trade deal, China has agreed to purchase more U.S. goods and services. However, critics of the deal have noted that the exact details are listed in a confidential annex and will not be made public. As well, the agreement does not address Chinese subsidies for state-owned enterprises, which U.S. businesses have long complained has resulted in an unfair playing field.

So is Phase One a monumental breakthrough or little more than a truce in the U.S.-China trade war? Perhaps the truth lies somewhere in the middle. If the Trump administration can use the goodwill and momentum which has been generated to kickstart negotiations for a Phase Two agreement, the global economy stands to benefit.

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