The trade agreement for the Phase-1 between Washington and Beijing was concluded with several promises for relaxing tariffs from both the countries on December 12, 2019. Since the talk began between the two biggest economies, the global economy had been severely affected and the growth of the global investments hampered due to the uncertainty regarding the outcome of the deal.
Phase-1 Trade Deal
A key challenge at the beginning of the US-China trade war was that both countries were focusing on increasing import restrictions against each other, in case if the deal failed. Since July 2018, the Trump administration had been imposing billions of dollars tariff on Chinese imports.
China warned Trump that it would impose more tariffs on US goods and might suspend negotiation talks until after the US presidential election in November 2020. As per some experts, China planned to impose a 25% tariff on the US-made vehicles and 5% tariffs on automobile parts of these vehicles.
The bilateral talks succeeded for the initial phase and both the countries agreed to relax their tariffs imposed on each other. According to Reuters, “The US would suspend tariffs on $160 billion in Chinese goods expected to go into effect on December 15, 2019 and roll back existing tariffs.”
As per a media report, “The US negotiators were offering to cut existing tariffs on Chinese goods by as much as 50% as well as suspend the new tariffs scheduled to go into effect on Sunday in an attempt to secure a “Phase 1” deal first promised in October.”
The US’ decision on lifting trade tariffs against China was because the latter country agreed to increase its budget for buying products, especially agricultural goods, from the former in 2020.
Prevailing Challenges behind the Promises
According to Reuters, “The White House has agreed to suspend some tariffs on Chinese goods and in return, Beijing would agree to buy $50 billion in U.S. agricultural goods in 2020.” China had spent around $ 24 billion to buy farming-related products from the US in 2017 and promised to double its budget in the next year.
However, the White House has not released any official statement whether the terms had been formally agreed upon by the both countries. Meanwhile, the US has announced $28 billion subsidies for American farmers in the light of the progress of the trade deal.
According to Craig Allen, however, the President of the US-China Business Council, “If signed, this is an encouraging first phase that puts a floor under further deterioration of the bilateral relationship. But this is just the beginning. The issues facing the US and China are complex and multi-faceted. They are unlikely to be resolved quickly.”
According to Chinese officials, the promise of $ 50 billion would be implemented as per the prevailing global market conditions. According to a Washington-based media source, “The promise needs to be established formally and until a written agreement is signed, the promise is not accountable.”
The suspicion against China’s promise was due to the concerning domestic problems in the country; for instance, the country spent half of the agricultural purchase budget of 2017 on soybeans but the pig herds had been recently wiped out by the African Swine fever. It presently had old stock, which needs to be cleared out before buying new products from the US.
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