US will increase exports to China by $200B under phase 1 deal

Dive Brief:

The U.S. and China signed the first phase of a trade deal Wednesday under which the U.S. would increase its exports to China by $200 billion over a 2017 baseline.
But many of the tariffs put in place during the year and a half long trade war will remain in place, including the 25% tariff on $250 billion worth of imports from China. The countries had agreed to some reductions in the weeks leading up to this week's signing.
Under the deal, the U.S. will increase its exports to China in manufactured goods, agricultural goods, energy products and services by tens of billions of dollars over 2020 and 2021. The increased agriculture exports will be especially noteworthy for American farmers who have struggled to find business to make up for the loss of Chinese trade.

Matt Leonard / Supply Chain Dive, data from trade deal

Dive Insight:

A trade increase of $200 billion over two years could result in a desired business uptick for American firms, especially farmers, but the signing is no guarantee, one farmer told NPR.

"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," Kristin Duncanson, a farmer in central Minnesota told the radio station.

China's state-run economy makes it easier to increase its imports by large quantities, but it could be difficult to accomplish without reducing imports from elsewhere, according to a UBS analyst cited by CNN.

Prior to the deal signing, the countries had agreed to cut some tariffs. The 15% tariffs that took effect at the beginning of September on roughly $120 billion worth of goods (list 4A) will be reduced to a rate of 7.5%, President Donald Trump announced last month. China also said it would lower tariffs for all its trading partners on 850 products. But many other tariffs remain in place, including the 25% tariff on $250 billion worth of imports from China.

The signing of the deal drew praise from industry, but it was followed by pleas to do more to remove the taxes. U.S. businesses and consumers have had to pay an estimated $46 billion in tariffs since the dispute began, according to Tariffs Hurt the Heartland.

"The trade war won’t be over until all of these tariffs are gone," NRF President and CEO Matthew Shay said in a statement. "We are glad to see the phase one deal signed, and resolution of phase two can’t come soon enough."

UPS CEO David Abney similarly called the deal a "first step" in a statement.

The U.S. Chamber of Commerce, which lobbies for U.S. business interest, said the deal "signals a rollback" of the trade war, but said there was still work to do in a second phase, including on "subsidies, digital trade and data discrimination, and non-tariff barriers to U.S. manufacturers and service providers."

The deal also prevents China from forcing companies to transfer their technology to Chinese competitors as a condition for market access.

Some pointed out that the Chinese have a history of failing to live up to formal agreements, but the Trump administration voiced confidence in the deal Wednesday.

Overall, there weren't many surprises in the deal and the market acted accordingly with a muted day on Wall Street, according to CNBC.

The ongoing trade war has resulted in China dropping to the third-largest trading partner for the U.S. It was the largest trading partner until January 2019, according to Census data.

The first phase of the deal did address some long-standing concerns about trade with China, but remaining concerns in the business community place a lot of pressure on the second phase of the deal.