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US and China reached a trade agreement, but some key details are still unclear

US and China reached a trade agreement, but some key details are still unclear

Key Points

  • After the U.S. and China on Friday announced progress on a trade agreement, a critical point of the deal remains in question: agricultural purchases.
  • U.S. Trade Representative Robert Lighthizer China would buy at least $16 billion more agricultural goods in each of the next two years, Reuters reported.
  • "That scale of purchases seems implausible and Chinese officials were reluctant to mention any specific target during their press conference," Ting Lu, chief China economist at Nomura, and his team said in a note.
  • A Chinese and U.S. flag at a booth during the first China International Import Expo in Shanghai, taken on November 6, 2018.

    After the U.S. and China on Friday announced progress on a trade agreement, a critical point of the deal remains in question: agricultural purchases.

    The bilateral trade is a significant part of the dispute between the world's two largest economies, especially after both sides decided to break the negotiations into phases, rather than tackling a slew of American concerns which range from the trade deficit in goods to state control in the economy.

    On Friday, both countries held separate press conferences to announce that they reached a so-called phase one agreement.

    U.S. President Donald Trump said the Chinese would buy $50 billion in agricultural purchases "pretty soon." More specifically, Reuters reported that U.S. Trade Representative Robert Lighthizer told reporters that China would buy at least $16 billion more agricultural goods in each of the next two years. The article noted that could bring total purchases to near $50 billion in 2020 and 2021.

    "That scale of purchases seems implausible and Chinese officials were reluctant to mention any specific target during their press conference," Ting Lu, chief China economist at Nomura, and his team said in a note released Saturday, Beijing time.

    Trade between the U.S. and China has fallen as both sides applied tariffs on billions of dollars' worth of goods from the other. In 2018, China ranked fifth of top destinations for U.S. agricultural exports at $9.2 billion, down from second place a year earlier, according to the U.S. Department of Agriculture Foreign Agricultural Service.

    In an encouraging first step, the U.S. held off raising tariffs on Chinese goods on Sunday, and Beijing did not go ahead with planned retaliatory tariffs. China has also been increasing its purchases of American soybeans this year, despite an overall expected decline in Chinese demand for the product, according to the U.S. Soybean Export Council.

    Chinese stocks traded mildly lower Monday, following a muted U.S. stock market response to news of the phase one trade agreement on Friday.

    Larry Hu, head of Greater China economics at Macquarie, said in a note Saturday that the trade tensions have a greater impact on sentiment than economic growth, which is more reliant on other factors.

    "Therefore, a phase-1 trade deal could prevent things from getting worse by cancelling the new tariff, but could not make things much better," Hu said.

    It's still unclear how and when the U.S. will roll back other tariffs, a condition for a phase-one deal that the Chinese side has firmly maintained. The Office of the U.S. Trade Representative said in a statement that the United States will keep 25% tariffs on about $250 billion of Chinese imports, along with 7.5% duties on roughly $120 billion of Chinese imports.

    Both sides also still need to sign the text of an agreement, which Chinese officials said requires legal review and translation. Lighthizer said both countries hope to sign the deal in Washington in early January, and there would be no new tariffs as long as China negotiates in good faith.

    Scott Kennedy, senior advisor and trustee chair in Chinese business and economics at the Center for Strategic and International Studies, pointed out Friday in an online article that this marks the "fifth instance during the U.S.-China trade dispute that a deal has been prematurely declared."

    "With only limited concessions, China has been able to preserve its mercantilist economic system and continue its discriminatory industrial policies at the expense of China's trading partners and the global economy," he said. "Trump could reverse course and renew tariffs, but Beijing has bought itself a likely respite from the daily uncertainty for at least a few months and perhaps for the remainder of Trump's current term."

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