It is exactly as we thought it would be. There are multiple interests, nuances in details, a completely overlooked big picture, and the financial pundits are flummoxed.
CTH has followed the granular details over several years. In advance of a “phase one” announcement we noted a necessary paradigm shift needed to understand most of the dynamics at play [SEE HERE]. It is all going according to a very visible plan. President Trump tweets:
China has agreed to a $40 billion agricultural purchase from the U.S. In exchange for that purchase President Trump will be maintaining the full 25 percent tariffs on approximately $250 billion of Chinese imports and reducing to 7.5 percent the tariffs on approximately $120 billion of Chinese imports (round two). [Those were 15% prior to reduction]
The net difference (dropping 15% to 7.5%) is around $9 billion in tariff relief. Additionally, the U.S. is “suspending” the December 15th tariffs pending compliance verification with the non-tariff issues and China pledges.
Beijing has agreed to allow U.S. banks access to their financial markets, reform their behavior on IP theft, stop the forced transfer of technology and, according to their *promises*, allow exclusive ownership of U.S. businesses within China. These are the non-tariff issues. However, these are *promises*, and Trump/Lighthizer are well aware Beijing lies as a competitive strategy. Hence, the tariff hammer remains.
This is where the U.S. reviewer paradigm shift is needed. Remember: “There is no actual intent to reach a trade deal with China where the U.S. drops the tariffs and returns to holding hands with a happy panda playing by new rules. This fictional narrative is a figment of fantasy being sold by a financial media that cannot fathom a U.S. President would be so bold as to just walk away from China.”
President Trump doesn’t necessarily want China to comply with Western perspectives on free, fair and reciprocal trade. He doesn’t want it not to suck doing business in China. The goal of decoupling the U.S. from China is easier if U.S. companies are abused by China. In the bigger picture President Trump wants the U.S. companies to leave.
The decoupling is already underway, and President Trump is creating new supply chains and manufacturing opportunities within the USMCA. Business reform in China actually works against these objectives.
Based on history China won’t reform, Trump knows that, and everything over the past three years has been a set of parallel objectives. Provide Beijing the opportunity to reform and stop their manipulative practices… BUT plan for them to do nothing.
USTR Robert Lightizer outlines their promise:
Washington, DC – The United States and China have reached an historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.
The Phase One agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years. Importantly, the agreement establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement. The United States has agreed to modify its Section 301 tariff actions in a significant way.
The United States first imposed tariffs on imports from China based on the findings of the Section 301 investigation on China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. The United States will be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports. (read more)
Beijing has promised changes to intellectual property, technology transfer, agriculture, financial services, currency and foreign exchange. Additionally, Beijing has pledged a $40 billion agriculture purchase.
In exchange President Trump is willing to give up $9 billion in tariffs (15% lowered to 7.5%) and suspend further tariffs pending verification of the Beijing promises.
Economically in the deal, President Trump gains a net $40 billion for U.S. farmers; and gives up $9 billion in tariffs. From that point everything, including any other possible trade agreement (phase 2, 3 etc.), is contingent on Beijing complying with their promises.
SUMMARY: Tariffs and decoupling will continue; exactly as expected: