What’s Next for Trump’s Phase-One Trade Deal With China

(Bloomberg) --

After testing the patience of financial markets, the U.S. says it has hashed out with China the terms of that long-awaited “phase one” deal, with President Donald Trump said to have signed off on it and expected to lead an unveiling as soon as Friday.

As advertised, the agreement hinges on China stepping up its purchases of American agricultural products to as much as $50 billion annually and committing to crack down on intellectual property theft, not manipulate its currency and open up the financial services sector to more foreign companies. In return, the U.S. won’t go ahead with Dec. 15 tariffs and appears to be ready to reduce the existing tariffs on some $360 billion in imports from China that have been steadily been introduced since last year.

So what comes next?

• More waiting for the final text. People close to the deal told Bloomberg that the agreement still needs to be signed off by lawyers on both sides. On a number of fronts, this pact is unusual. But the wait for the lawyers is not, it should be pointed out. Every trade accord goes through what is known as a “legal scrub.” It could take weeks.
• A political backlash from Washington’s China hawks. An agreement to reduce tariffs of any sort is seen as a capitulation by those who want Trump to continue taking a hard line against Beijing. And that, they have started arguing already, means giving up hope of more meaningful Chinese reforms.
• Phase Two? It might be a while. By splitting his deal into phases Trump decided to put off hard issues for another round. But most analysts are skeptical that China will ever offer any meaningful reforms on matters like industrial subsidies. Or feel the need to with a U.S. election looming next November.
• The lingering threat of a breakdown. It’s in the interest of both sides to calm financial market fears and sign up to what amounts to an elaborately disguised truce in their trade war. But it’s hard to escape the reality that the broader U.S.-China relationship has been deteriorating over everything from the protests in Hong Kong to the crackdown on ethnic minorities in far-western Xinjiang. Or that there is still a technological Cold War brewing. For all those reasons this deal is likely to be tested in the months to come.

Charting the Trade War

America’s post-World War II transition from industrial superpower to the biggest net exporter of services — such as intellectual property, travel and transport, computers, finance, insurance, health care, higher education and businesses associated with academia — climaxed with a record monthly trade balance of $21.9 billion at the end of 2015. But this vital measure of the advanced U.S. economy has fallen almost 3%, to $21.1 billion, since then. Read the Matthew Winkler’s full Bloomberg Opinion column here.

Today’s Must Reads

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• A step closer | Mexico’s Senate passed changes to a new Nafta replacement free-trade deal with the U.S. and Canada after the three nations completed months of negotiations.
• Wish list | Apple avoids 15% tariffs on its most important products — the iPhone, iPad and MacBooks — under Trump’s proposed trade deal with China.
• Import tax | The EU’s Green Deal includes a mechanism that could consist of taxes on imported products that don’t meet the same stringent criteria as those made in Europe.
• Christmas break | A likely truce in the U.S.-China trade war would offer a pre-holidays reprieve to companies like Walmart and Hasbro that had faced new tariffs on Chinese-made consumer goods.

Economic Analysis

• By the numbers | Here’s what avoiding the December tariffs means for the global economy in 2020.
• Seven wonders | The yuan breaks 7.0 again as Trump signs off on stage one of the trade deal with Beijing.

Coming Up

• Dec. 17: Japan, European Union trade balance

--With assistance from Jenny Leonard.

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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