The U.S. and China finally have something to show for 18 months of tit-for-tat tariffs, abrupt escalations, and terse back-and-forth verbal jabs. It was all smiles during a jubilant signing ceremony at the White House as President Donald Trump and Vice Premier Liu He signed phase one of a comprehensive trade agreement.
President Trump was flanked by Vice President Mike Pence, Treasury Secretary Steven Mnuchin, and Trade Representative Robert Lighthizer. He told the audience that the U.S. is taking “a momentous step” with China and embarking upon a future of “fair and reciprocal trade” that rights the wrongs of the past. Trump promised that the deal delivers “economic justice” for American workers, farmers, and families that “should have happened 25 years ago.”
Moving forward, Trump stated, the partnership will remove “market barriers” to energy, manufacturing, retail, agriculture, and a host of other industries. He also announced that all tariffs on China would come off once the second phase of the agreement is established because a third phase is not expected.
Trump proceeded to thank members of his administration, governors, Republicans on Capitol Hill, and various business leaders. The audience was treated to about 30 minutes of Trump complimenting everybody on their record, golf game, and kind words. His comments veered way off track from the trade deal, covering negative interest rates, ethanol, oil pipelines, Mount Rushmore, and the “impeachment hoax.” The president briefly directed his attention to “Cryin’” Senator Chuck Schumer (D-NY) for opposing a deal he had yet to study. Because the agreement was tightly guarded, a lot of the details were kept quiet, so only parts of the pact were released. Schumer’s premature disapproval resulted in mockery by Trump.
Vice President Pence called it a “good day for America, China, and the world,” adding that the agreement “puts America first.” He told Trump, “You said to our friends in China things have to change, and today, thanks to your leadership, the change begins.”
Liu He read out loud a personal letter from Chinese President Xi Jinping:
“Provisions of the phase one trade agreement between China and the U.S. are good for China, for the U.S., and for the whole world. It shows our two countries have the ability to act on the basis of equality and mutual respect and working dialogue without confrontation and properly handle and effectively resolve our issues.
“I believe under our leadership, U.S.-China relations will deliver more results and provide greater benefits for our peoples in the years ahead.”
The vice premier called phase one a win-win deal that “will bring stable economic growth, promote world peace and prosperity, and is in the interest of consumers and investors of both countries.” He added that the agreement is in line with the World Trade Organization’s (WTO) rules, so it does not act against the interests of other countries. “There is a Chinese proverb, ‘The beginning is the most difficult part,’” Liu said. “There is a similar saying in English, ‘A good beginning is half the success.’ It means that we need to continue to be problem-oriented and focused on implementing phase one trade agreement to bring about a good start in the sound economic and trade relations moving forward.”
By the end of the press conference, the Dow Jones Industrial Average and Nasdaq Composite surged to a record high, and the Volatility Index slumped to a three-week low of 12.27.
What’s Inside Phase One?
Specifics of the deal itself remain murky right now, but here is what we do know.
On paper, China has agreed to spend $200 billion over the next two years on U.S. agriculture, food, seafood products, and financial services. Beijing will also abolish a common practice of requesting foreign businesses to hand over technological innovations in exchange for Chinese market access and regulatory approvals. Overall, the world’s second-largest economy will reform its policies relating to finance, intellectual property, and technology transfers.
The U.S. government will remove its designation of China as a currency manipulator. However, a key section in the pact notes that Beijing must not manipulate the yuan to attain trade advantages. Treasury Secretary Mnuchin noted that China has already been taken off the list of currency manipulators because of assurances by officials.
A major concession by the U.S. is that the White House will cut in half a 15% levy on $110 billion worth of imports and postpone future escalation. At the same time, 25% tariffs will remain on $360 billion in Chinese goods. If China is found to be complying with the terms of the deal, the administration could lower some of these duties. Mnuchin confirmed that if Beijing violates any of the provisions or fails to meet its commitments, then President Trump “retains the authority to put on tariffs.” Enforcement will be integral to the success of this trade deal. While conceding that the first phase does not cover all reforms the White House first sought, he still called the preliminary deal “a big win for the president.”
So, what’s next?
Phase Two and Beyond
The next step will be phase two. The administration has not announced a start date for negotiations, but President Trump revealed they would begin once the current deal kicks in. He also tweeted on December 31 that he would eventually travel to Beijing to help start the second phase of talks. The details are unknown at this point, though Mnuchin revealed that “there will be additional rollbacks” in the next round.
For now, Trump and his re-election team can inform voters until November: Promise made and a promise kept.
Read more from Andrew Moran.