The phase one deal signed by US President Donald Trump and China's Vice-Premier Liu He at the White House is a win for Trump, US business and improved conditions for investment.

By Ian Horswill

Posted on January 16, 2020

The 20-month trade war between China and the US is over and there’s a clear winner.

The phase one deal signed by US President Donald Trump and China’s Vice-Premier Liu He at the White House, Washington DC, on Wednesday is a win for Trump, US business and improved conditions for investment. It will also boost the US economy after the two largest economies in the world imposed tariffs on billions of dollars’ worth of each other’s goods in a tit-for-tat trade war which has led to extra import taxes being levied on more than US$450 billion worth of traded goods.

“The agreement will work if China wants it to work,” Robert Lighthizer, the US trade representative, told reporters on Wednesday. “The people in China I’m dealing with want it to work.”

Here’s why the end of the US/China trade war is a win for Trump:

China has agreed to purchase an additional US$200 billion in US manufactured, agricultural and energy goods and services over the next two years. China has also agreed to crack down on intellectual property theft and the forced transfer of US technologies.

In exchange, the US has agreed to halve some of the new tariffs it has imposed on Chinese products. However, the majority of the border taxes remain in place, which has prompted business groups to call for further talks.

“There’s a lot of work to do ahead,” said Jeremie Waterman, president of the China Center (sic) at the US Chamber of Commerce. “Bottom line is, they should enjoy today but not wait too long to get back to the table for phase two.”

Trump said the signing ceremony that the trade deal is “righting the wrongs of the past.” He promoted the signing as a way of delivering economic justice for American workers and said, “We mark a sea change in international trade” with the signing, AAP News reported.

Treasury Secretary Steven Mnuchin told CNBC that he would expect a future “phase two” trade deal with China to ease US tariffs further.

“Just as in this deal there were certain rollbacks, in phase two there will be additional rollbacks,” Mnuchin said. “It’s really just a question of, and we’ve said before, phase two may be 2A, 2B, 2C. We’ll see.

“The first step is really focusing on enforcement, but this gives China a big incentive to get back to the table and agree to the additional issues that are still unresolved.”

Former White House advisor Steve Bannon told CNBC’s Squawk Box with Kyle Bass that Trump “stood up for the tariffs and he broke the Chinese Communist Party.”

Daniel Clifton, head of policy research at Strategas, said the market response to the deal could continue to be favourable. The S&P 500 has risen 12% since Trump said on 11 October that the US and China were close to a new deal.

“You’ve seen financial conditions loosen and that’s been the biggest benefit of this deal. For example, the yield curve uninverted on the day they announced the deal. The Chinese currency has been tightening relative to the dollar since they announced the deal,” said Clifton. “The truce is working and that’s the most important detail of this all, and we continue to benefit from this.”

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