Tag Archives: phase one

U.S., China set to sign massive purchases deal, easing trade war

By David Lawder

WASHINGTON (Reuters) – U.S. President Donald Trump and Chinese Vice Premier Liu He will sign an initial trade deal on Wednesday that will roll back some tariffs and see China boost purchases of U.S. goods and services, defusing an 18-month conflict between the world’s two largest economies.

Liu said the two sides will work more closely together to obtain tangible results and achieve a win-win relationship despite differences in their political and economic models, China’s official Xinhua news agency reported on Wednesday.

U.S. officials called the deal a huge win that marked a significant shift in Washington’s relations with China, but said it included a tough enforcement measure that could trigger renewed tariffs if Beijing does not live up to its promises.

The Phase 1 agreement caps a trade war marked by tit-for-tat tariffs that has hit hundreds of billions of dollars in goods, roiling financial markets, uprooting supply chains and slowing global growth.

Some analysts and economists have questioned whether the outcome of the drawn-out talks justified that economic pain.

Trump and Liu, who led the Chinese side in the trade talks with Washington, are scheduled to sign the 86-page Phase 1 deal at a White House event at 11:30 a.m. EST (1630 GMT) before over 200 invited guests from business, government and diplomatic circles.

It is not clear at this time whether the entire document will be released on Wednesday.

Trump, who entered the White House in 2017 vowing to rebalance global trade in favor of the United States, has already begun touting the deal as a pillar in his 2020 re-election campaign, calling it “a big beautiful monster” at a rally in Toledo, Ohio last week.

“Our farmers will take it in. I keep saying, ‘Go buy larger tractors, go buy larger tractors,'” Trump said.

The centerpiece of the deal is a pledge by China to purchase an additional $200 billion worth of U.S. farm products and other goods and services over two years. That will help reduce the bilateral U.S. trade deficit in goods, which peaked at $420 billion in 2018. The United States had a small services trade surplus with China of $40.5 billion in 2018.

Top White House economic adviser Larry Kudlow told Fox News the agreement would add 0.5 percentage point to U.S. gross domestic product growth in both 2020 and 2021.

Kudlow said the deal called for China to buy an additional $75 billion worth of U.S. manufactured goods over the two-year period. A source told Reuters this week that would include aircraft, autos and car parts, agricultural machinery and medical devices.

Beijing will boost energy purchases by some $50 billion and services by $40 billion, mostly in the financial sector, Kudlow said.

The Reuters source said agricultural purchases will get a $32 billion lift over the two years, compared to a 2017 baseline of U.S. exports to China.

When combined with the $24 billion in 2017 farm exports, the $16 billion annual increase approaches Trump’s goal of $40 billion to $50 billion in annual agricultural sales to China.

China will significantly increase imports of U.S. soybeans after the Phase 1 deal is signed, the Global Times reported on Wednesday, citing comments from a senior Chinese economist at a state think tank.

Wang Liaowei, senior economist at the China National Grain and Oils Information Center, which is under the National Food and Strategic Reserves Administration, also told the paper that imports of U.S. products such as pork and cotton could also see a jump.

Although the deal could be a big boost to farmers, planemaker Boeing <BA.N>, U.S. automakers and heavy equipment manufacturers, some analysts question https://af.reuters.com/article/commoditiesNews/idAFL4N29J26S China’s ability to divert imports from other trading partners to the United States.

“I find a radical shift in Chinese spending unlikely. I have low expectations for meeting stated goals,” said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis. “But I do think the whole negotiation has moved the football forward for both the U.S. and China.”

TARIFFS TO STAY

The Phase 1 deal, reached in December, canceled planned U.S. tariffs on Chinese-made cellphones, toys and laptop computers and halved the tariff rate to 7.5% on about $120 billion worth of other Chinese goods, including flat panel televisions, Bluetooth headphones and footwear.

But it will leave in place 25% tariffs on a vast, $250 billion array of Chinese industrial goods and components used by U.S. manufacturers.

U.S. Treasury Secretary Steven Mnuchin told CNBC on Wednesday the deal would boost the U.S. economy, and that Washington could lower tariffs as part of a Phase 2 agreement that would address complex issues such as cybersecurity.

Mnuchin said the U.S. relationship with China was complicated and Washington would continue to raise humanitarian and national security concerns with Beijing in separate discussions. “You have to negotiate different pieces at different times,” he said.

He said Chinese telecom equipment maker Huawei Technologies Co Ltd was not a “chess piece” in the economic negotiations.

China’s Global Times said the Phase 2 discussions may not start anytime soon.

Evidence is mounting that tariffs have raised input costs for U.S. manufacturers, eroding their competitiveness.

Diesel engine maker Cummins Inc <CMI.N> said on Tuesday that the deal will leave it paying $150 million in tariffs for engines and castings that it produces in China.

The company issued a tepid statement of approval on Tuesday: “We believe this is a positive step and remain optimistic that all parties will remain at the table in order to create a pathway to eliminate all of the instituted tariffs.”

Lighthizer and Mnuchin insisted there were no side agreements to remove more tariffs after the November U.S. elections. Mnuchin on Wednesday reiterated that Trump could consider easing tariffs if the two countries move quickly to seal a Phase 2 follow-up agreement.

CORE ISSUES UNTOUCHED

The Phase 1 deal includes pledges by China to forbid the forced transfer of American technology to Chinese firms as well as to increase protections for U.S. intellectual property.

But it stops well short of addressing the core U.S. complaints about China’s trade and intellectual property practices that prompted the Trump administration to pressure Beijing for changes in early 2017.

The deal contains no provisions to rein in rampant subsidies for state-owned enterprises, which the administration blames for excess capacity in steel and aluminum and says threaten industries from aircraft to semiconductors.

It also fails to address digital trade restrictions and China’s onerous cybersecurity regulations that have hobbled U.S. technology firms in China.

China has agreed in the Phase 1 deal to open its financial services sector more widely to U.S. firms, and to refrain from deliberately pushing down its currency to gain a trade advantage, the latter prompting Treasury to drop its currency manipulator label on Beijing.

(Additional reporting by Lisa Lambert, Andrea Shalal, Echo Wang, Alexandra Alper, and Herb Lash in New York, and Se Young Lee and Stella Qui in Beijing; Editing by Simon Cameron-Moore and Paul Simao)

China to ramp up U.S. car, aircraft, energy purchases in trade deal: source

By David Lawder and Andrea Shalal

WASHINGTON (Reuters) – China has pledged to buy almost $80 billion of additional manufactured goods from the United States over the next two years as part of a trade war truce, according to a source, a target that could provide a much-needed boost for planemaker Boeing but is being questioned by U.S. trade experts.

Under the trade deal to be signed on Wednesday in Washington, China would also buy over $50 billion more in energy supplies, and boost purchases of U.S. services by about $35 billion over the same two-year period, the source told Reuters late on Monday.

The Phase 1 agreement calls for Chinese purchases of U.S. agricultural goods to increase by some $32 billion over two years, or roughly $16 billion a year, said the source, who was briefed on the deal.

When combined with the $24 billion U.S. agricultural export baseline in 2017, the total gets close to the $40 billion annual goal touted by U.S. President Donald Trump.

The numbers are expected to be announced at Wednesday’s White House signing ceremony between Trump and Chinese Vice Premier Liu He and represent a staggering increase over recent Chinese imports of U.S. manufactured goods. The size of the targets has raised questions https://af.reuters.com/article/commoditiesNews/idAFL4N29J26S about how realistic they are.

BEYOND THE FARM

Two other sources familiar with the Phase 1 trade deal agreed with the rough breakdown of the purchases, without providing specific numbers.

A spokesman for U.S. Trade Representative Robert Lighthizer’s office could not immediately be reached for comment.

Lighthizer on Monday called the deal a “huge step forward” for U.S.-China trade relations and “a really, really good deal for the United States.” He told Fox Business Network that Beijing’s compliance would be monitored closely.

Lighthizer and his counterparts from Japan and the European Union on Tuesday took aim at China, proposing new global trade rules to curb subsidies that they say are distorting the worldwide economy.

Beijing’s subsidies to state-owned firms are expected to be addressed under a later Phase 2 U.S.-China trade deal, but it remains unclear when those negotiations will begin.

Senate Democratic Leader Chuck Schumer warned Trump in a letter that a weak agreement that failed to address what he called China’s “rapacious trade behaviors” and structural inequities would harm U.S. workers and firms for years to come.

When the Phase 1 trade deal was struck on Dec. 13, U.S. officials said China had agreed to buy $200 billion in additional U.S. farm products, manufactured goods, energy and services over the next two years, compared to the baseline of 2017.

They said they would publish targets for the four broad areas, but would keep details of specific products classified to avoid market distortions.

The $32 billion agriculture increase over 2017 was confirmed by Myron Brilliant, the U.S. Chamber of Commerce’s head of international affairs, who spoke to reporters on Monday in Beijing.

Analysts and traders doubted whether China could absorb such a big increase. Relying on the United States so heavily could expose China to price and supply risks, they said.

Large Chinese purchases of Brazilian soybeans and Beijing’s suspension of a plan to implement a nationwide gasoline blend containing 10% ethanol this year have also raised questions about China’s ability to double its imports of U.S. farm products.

Trump had mainly touted the increased farm exports, which would benefit a major political constituency that has been battered by Chinese retaliatory tariffs during his 18-month trade war with Beijing.

Company executives have been waiting eagerly for details of what other U.S. goods China would be buying more of, aside from farm products, after 18 months of tit-for-tat tariffs that have stalled U.S. business investment.

MANUFACTURING CHALLENGES

The $80 billion increase for manufactured goods includes significant purchases of autos, auto parts, aircraft, agricultural machinery, medical devices and semiconductors, said one of the sources, without naming any specific suppliers.

The aircraft would likely be built by Boeing Co <BA.N>, the No. 1 U.S. exporter, whose new sales to China have ground to a halt over the past two years. That would be a welcome boost for the aerospace giant, where shares and earnings have plummeted as its best-selling 737 MAX aircraft remains grounded due to two fatal crashes.

The source providing the purchase figures expressed skepticism about manufactured goods pledges by Beijing since the U.S.-China trade deal does not address any of the non-tariff barriers that have kept these U.S. goods out of the Chinese market for decades, including procurement rules, product standards and subsidies to Chinese state-owned firms.

With Chinese car sales flagging and excess domestic assembly capacity on the rise, China would seem unlikely to purchase significantly more U.S.-built cars. Among the most popular U.S.-built vehicles sold in China are BMW <BMWG.DE> and Mercedes-Benz <DAIGn.DE> sport-utility vehicles.

China also has major industrial policy goals to dominate the very manufacturing sectors in which it has pledged to pump up purchases of U.S. goods, further fueling skepticism.

Many economists and experts are dubious the Phase 1 trade agreement will be implemented as written, despite what U.S. officials describe as an important enforcement clause.

If a U.S. claim of Chinese non-compliance cannot be resolved, Washington would have the right to reimpose tariffs on Chinese goods in proportion to the economic damage alleged. But nothing would preclude China from retaliating, people familiar with the deal said.

Oil traders and analysts were also doubtful whether China would be able to purchase an extra $50 billion of energy products, including crude oil, liquefied natural gas (LNG) and imports of petrochemical raw materials such as ethane and liquefied petroleum gas (LPG).

(Additional reporting by Gabriel Crossley and Hallie Gu in Beijing, and Florence Tan in Singapore; Editing by Simon Cameron-Moore and Howard Goller)

Trump says U.S.-China trade deal will be signed on January 15

WASHINGTON (Reuters) – U.S. President Donald Trump said on Tuesday that Phase 1 of trade deal with China would be signed on Jan. 15 at the White House, though considerable confusion remains about the details of the agreement.

The president wrote in a tweet that he would sign the deal with “high level representatives of China” and that he would later travel to Beijing to begin talks on the next phase.

Last week, Trump said he and Chinese President Xi Jinping would host a signing ceremony to ink the Phase 1 deal.

The Phase 1 deal, struck earlier this month, is expected to reduce tariffs and boost Chinese purchases of American farm, energy and manufactured goods while addressing some disputes over intellectual property.

However, no version of the text has been made public, and Chinese officials have yet to publicly commit to key planks, such as increasing imports of U.S. goods and services by $200 billion over two years.

China bought $130 billion in U.S. goods in 2017, before the trade war began, and $56 billion in services, U.S. data show.

The United States launched a trade war against Beijing a year and half ago over allegations of unfair trade practices, such as theft of U.S. intellectual property and subsidies that unfairly benefit Chinese state-owned companies.

The United States Trade Representative said the Phase 1 deal includes stronger Chinese legal protections for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods.

Issues such as industrial subsidies would be addressed in a later deal, U.S. authorities said.

The escalating tit-for-tat tariffs, which began in July, 2018, have roiled markets and crimped economic growth worldwide.

Though it was not immediately clear who would represent the Chinese delegation at the signing, the South China Morning Post reported on Monday that Vice Premier Liu He would visit Washington to sign the deal.

Asked Tuesday when the deal might be signed, China’s foreign ministry spokesman referred questions to China’s Department of Commerce.

(Reporting by Diane Bartz and Alexandra Alper; editing by Jonathan Oatis and Nick Zieminski)

Trump says he and Xi will sign China trade deal

FILE PHOTO: U.S. President Donald Trump smiles as he as walks on the South Lawn of the White House upon his return to Washington from South Korea, U.S., June 30, 2019. REUTERS/Yuri Gripas/File Photo

PALM BEACH, Fla. (Reuters) – U.S. President Donald Trump said on Tuesday he and Chinese President Xi Jinping will have a signing ceremony to sign the first phase of the U.S.-China trade deal agreed to this month.

“We will be having a signing ceremony, yes,” Trump told reporters. “We will ultimately, yes, when we get together. And we’ll be having a quicker signing because we want to get it done. The deal is done, it’s just being translated right now.”

United States Trade Representative Robert Lighthizer said on Dec. 13 that representatives from both countries would sign the Phase 1 trade deal agreement in the first week of January.

Beijing has not yet confirmed specific components of the deal that were released by U.S. officials. A spokesman for China’s Commerce Ministry said last week the details would be made public after the official signing.

(Reporting by Alexandra Alper; Writing by Doina Chiacu and Heather Timmons; Editing by Alex Richardson and Andrea Ricci)

Take Five: What’s the deal?

LONDON (Reuters) –

1/AFTER PHASE ONE COMES PHASE TWO

U.S. President Donald Trump and Chinese officials have agreed to a “phase one” trade deal that includes cutting U.S. tariffs on Chinese goods.

Washington has agreed to suspend tariffs on $160 billion in Chinese goods due to go into effect on Dec. 15, Trump said, and cut existing tariffs to 7.5%.

The agreement covers intellectual property, technology transfer, agriculture, financial services, currency, and foreign exchange, according to Washington’s Trade Representative.

Neither side offered specific details on the amount of U.S. agricultural goods Beijing had agreed to buy – a key sticking point of the lengthy deal negotiations. News of the trade deal saw U.S. stocks romp to fresh record levels. But few doubt that the rollercoaster is over yet.

While Trump announced that “phase two” trade talks would start immediately, Beijing made it clear that moving to the next stage of the trade negotiations would depend on implementing phase one first. While markets cheered the December rally, few expect the trade deal rollercoaster ride to be quite over yet.

 

2/MORE NICE SURPRISES, PLEASE!

First clues as to whether euro zone powerhouse Germany can avoid a fourth quarter recession emerge on Monday when advance PMI readings for November are released globally.

The economic activity surveys, a key barometer of economic health, come after Citi’s economic surprise index showed euro zone economic data beating consensus expectations at the fastest pace since February 2018. The latest surprise was a 1.2% rise in German exports in October, defying forecasts of a contraction.

Hopes are high that exports and private consumption, which helped Germany skirt recession, will hold up. Last month’s PMI data showed manufacturing remained in deep contraction across the bloc.

A Reuters poll showed expectations of a modestly higher 46.0 manufacturing reading in the euro zone but that’s still far below the 50-mark which separates growth from contraction. Services, which have held up better so far, are expected to grow modestly from November, at 52.0.

Graphic: Citi surprise index most positive since Feb 2018, https://fingfx.thomsonreuters.com/gfx/mkt/12/9901/9813/Citi%20index.png

3/BEWARE THE BOJ

Japan’s central bank meets on Thursday with the global economic outlook “relatively bright,” according to Governor Haruhiko Kuroda.

Growth green shoots, a possible U.S.-China trade deal and something nearing certainty on Brexit has got almost everyone expecting the BOJ will do very little: Interest rates are at -0.1% and the bank has eased off bond buying – even though the bank’s balance sheet is bursting with negative-yielding paper.

The government has flagged a gigantic $122 billion stimulus package to keep things moving after next year’s Olympics. Yet the business mood is dire with Friday’s “tankan” survey at its lowest reading since 2013. Big manufacturers – especially automakers – are gloomiest, as the trade war takes its toll.

The Bank of Japan has justified standing pat on the view that robust domestic demand will cushion the hit. It blames the weather and a sales tax for recent patchy data. But another week of dollar weakness will not have gone unnoticed in Tokyo, where a cheaper yen is much desired. A surprise on Tuesday export data forecast to show further contraction and Thursday’s inflation reading could jolt yen longs out of their slumber.

4/JOHNSON, AND MORE JOHNSON

A thumping election win for Prime Minister Boris Johnson has raised hopes that 3-1/2 years of Brexit-fuelled chaos will finally end.

Expectations that he may swing slightly nearer the centre of his Conservative Party, sidelining the fiercest eurosceptics, and ease the path towards a free-trade deal with the European Union have sent sterling and British shares surging.

Yet there are signs of caution, with sterling stalling around $1.35. Further gains will hinge on Johnson’s new cabinet, how the global growth and trade war backdrop pans out and what the Bank of England might do.

At the central bank’s Dec. 19 meeting, markets will watch for any shifts in its views on inflation, the UK economy and the interest rate outlook for 2020. While policymakers have skewed dovish of late amid a torrent of dismal data and sub-target inflation, the election result – and a hoped-for growth recovery – have seen money markets halve the probability of an end-2020 cut to 25%.

Without more clarity, investors might just be wary of chasing sterling much higher.

Graphic: UK economic indicators, https://fingfx.thomsonreuters.com/gfx/mkt/12/9958/9869/GB.png

5/SWEDEN RETURNS TO ZERO?

While most central banks are busy pondering whether to hold or cut interest rates, Sweden may swim against the tide and deliver a 25 basis-point rate hike on Dec. 19. That will end half a decade of negative interest rates in the country and make it the first in Europe to pull borrowing costs from sub-zero territory.

Policymakers flagged a rate hike in October and recent data showing inflation rising to 1.7% — just off the 2% target — cemented those expectations. The crown’s rallied to eight-month highs versus the euro, up almost 5% since October.

The proposed interest rate increase has its critics, who cite still-sluggish inflation and factory activity at its weakest since 2012.

Meanwhile, neighbouring Norway’s policy meeting, scheduled for the same day, may be less exciting as no change is expected. Investors remain baffled by the Norwegian crown’s weakness – despite policy makers delivering four rate hikes since Sept 2018, it’s at near record lows to the euro.

Graphic: Swedish crown , https://fingfx.thomsonreuters.com/gfx/mkt/12/9961/9872/crown.png

(Reporting by Alden Bentley in New York, Tom Westbrook in Singapore, Sujata Rao, Elizabeth Howcroft and Yoruk Bahceli in London, compiled by Karin Strohecker; edited by Philippa Fletcher)

China maintains tariffs must be reduced for phase one trade deal with U.S.

China maintains tariffs must be reduced for phase one trade deal with U.S.
BEIJING (Reuters) – Tariffs must be cut if China and the United States are to reach an interim agreement on trade, the Chinese commerce ministry said on Thursday, sticking to its stance that some U.S. tariffs must be rolled back for a phase one deal.

“The Chinese side believes that if the two sides reach a phase one deal, tariffs should be lowered accordingly,” ministry spokesman Gao Feng told reporters, adding that both sides were maintaining close communication.

Completion of a phase one deal between the world’s two biggest economies had been initially expected in November, ahead of a new round of U.S. tariffs set to kick in on Dec. 15, covering about $156 billion of Chinese imports.

Trade delegations on both sides remained locked in discussions over “core issues of concern,” with rising bilateral tensions over non-trade issues such as the protests in Hong Kong and Beijing’s treatment of its Uighur Muslim minority clouding prospects for a near-term deal to end a trade war.

China warned on Wednesday that U.S. legislation calling for a tougher response to Beijing’s treatment of Uighurs in the western Chinese region of Xinjiang will affect bilateral cooperation.

But “there is no need to panic,” as talks did not stop, a Chinese source who advises Beijing on the trade talks told Reuters on Wednesday.

“Both leaders have talked about reaching a deal, and officials are now finishing the work,” said the source, who thought it unlikely China would retaliate against U.S. legislation by releasing its so-called “unreliable entities list” aimed at punishing firms deemed harmful to Chinese interests.

When asked if China would release the list this year, Gao said he had no further information to reveal at present.

Beijing may hold back from publishing the list until the trade situation with the United States is at its most tense, a Chinese government source told Reuters in October.

On Wednesday, Trump said trade talks with China were going “very well,” sounding more positive than his remarks the previous day that a deal might have to wait until after the 2020 U.S. presidential election.

On Nov. 7, Gao said China and the United States must simultaneously cancel some existing tariffs on each other’s goods for both sides to reach a phase one trade deal, but how much tariffs should be canceled could be negotiated.

On a telephone call last week, China’s lead trade negotiator Vice Premier Liu He discussed “core issues of concern” with U.S. Trade representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin.

Washington imposed additional 15% tariffs on about $125 billion worth of Chinese goods on Sept. 1, on top of the additional 25% tariffs levied on an earlier $250 billion list of industrial and consumer goods.

U.S. President Donald Trump and Lighthizer recognize that rolling back tariffs for a pact that fails to tackle core intellectual property and technology transfer issues will not be seen as a good deal for the United States, a person briefed on the matter told Reuters late last month.

(Reporting by Gabriel Crossley and Yawen Chen; Writing by Ryan Woo; Editing by Clarence Fernandez and Jacqueline Wong)

Phase one trade deal with China is in good shape: U.S. Commerce Secretary

Phase one trade deal with China is in good shape: U.S. Commerce Secretary
WASHINGTON (Reuters) – The initial “phase one” trade pact with China appears to be in good shape and is likely to be signed around mid-November, although a finite date is still in question, U.S. Commerce Secretary Wilbur Ross said on Friday.

“We’re pretty comfortable that the phase one is in good shape,” he told Fox Business Network in an interview.

U.S. President Donald Trump and other administration officials had looked toward the Nov. 11-17 Asia Pacific Economic Cooperation summit as a possible venue to sign the deal with Chinese President Xi Jinping before Chile this week canceled its plan to host the international summit.

“Hopefully we can resurrect a date right in that range,” Ross told the television network, adding that the question of a new location remained.

Lead trade negotiators from both the United States and Chine are expected to speak by telephone on Friday as Ross prepared separately to travel to Asia for a three-day summit of Southeast Asian nations in Thailand.

“There will some transactions announced — some very good-sized transactions — announced while I’m on this trip,” he said, but gave no other details.

(Reporting by Susan Heavey; Editing by Catherine Evans and Louise Heavens)