US and China have agreed to sign a first trade deal
US president agreed to discontinue tariff on about $ 162 billion on Chinese goods and to cut an existing 15% levy on imports
Consistent with Forbes, almost two-thirds of products that Americans buy from China will still be tariffed which covers $ 360 billion in Chinese goods
US-China trade war- How it started?
The trade between the US and China has been huge and sophisticated since the start when both countries signed a bilateral trade agreement in 1979 and therefore the growth of trade was speedy, from $4 billion (imports and exports) in 1979 to more than $600 billion in 2017. US President Donald Trump, who advocated on setting tariffs since the 1980s, began setting tariffs also as other trade barriers on China to point out his concern on US deficit. The US also accused China of unfair trade practices like theft of intellectual property and made a transfer of yank technology to China. The American government in July 2018 set a tariff of 25% from 10% on about $370 billion in imports, which consists of most Chinese goods exported to the US. Consistent with the New York, Federal Reserve System, and Chinese firms could have cut 20% of their prices to ease the burden on American partners after levying a 25% tariff. Instead Chinese prices fell by 2% approximately. Beijing too has retaliated with duties on $110 billion of yank products and hit back with tariffs starting from 5% to 25% on US goods.
The very first trade deal between the US and China
The deal was signed between the 2 most powerful countries on January 15, 2020. However, the preliminary agreement was reached on December 13. As per the deal, the People’s Republic of China (PRC) guarantees to get a $ 200 billion bundle in US goods and services over the subsequent two years. This includes:
• $ 80 billion- U.S. manufactured goods
• $ 35 billion- Services
• $32 billion- Agriculture products
• $ 50 billion- U.S. energy exports
What are the consequences of complementary energy partners?
The United Nations is the world’s largest petroleum and gas producer and China is the world’s largest energy consumer. This makes the 2 natural energy trade partners. Chinese demand for oil is 13.5 million BPD (barrels of liquids per day). Consistent with Forbes, 11 million BPD represents a 70% import dependence ratio. The dependence ratio is extremely high despite the upper efforts by government-owned Chinese National Petroleum Corporation (CNPC) to extend domestic output. China slipped from the 4th largest crude producer in 2015 to the 7th largest today. Ban on U.S. crude exports in 2015 surged the American hydrocarbon exports. This trend continued until Donald Trump announced sweeping tariffs. China’s share of total US exports of petroleum dropped from over 20% within the half of 2018 to just about 5% within the 1st half of 2019. Similarly, in September 2019, China put the first-ever tariff on US crude.
How corona virus will weaken China’s position as a worldwide trade partner?
The corona virus is jeopardizing China’s ability to satisfy obligations it agreed to as a part of the phase-one trade affect with the US. Consistent with Stephen Roach, a senior lecturer at Yale School of Management, the outbreak is harming the country’s purchasing power and demand for varied imports. The pandemic also delays the face to face meetings among heads of the country needed to coordinate such large purchases. From an economic basis, officialdom is now reportedly considering a move to the country’s growth estimates. This is often because the key industries face unexpected slow-down.
The US also faces huge distractions from the dangerous virus. Therefore, a diplomatic member between Beijing and Washington threatens to derail the very first deal.
However, as per the Chinese President Xi, companies from other countries were already benefitted from the changes. Moreover, we should always not expect a landmark agreement that ends the trade war or hostilities. Phase one is simply a short-lived cease-fire, and a few of its key energy benchmarks are likely to not be achieved.