China to make huge purchases of US goods as details of phase one deal revealed

President Donald Trump, left, poses for a photo with Chinese President Xi Jinping during a meeting on the sidelines of the G-20 summit in Osaka, Japan on June 29, 2019. Susan Walsh—AP. Sketched by the Pan Pacific Agency.

BEIJING, Jan 15, 2020, SCMP. Sources confirm that China has committed to making large scale purchases of US$200 billion of American goods as part of the phase one trade deal. Purchase target for manufactured goods of around US$75 billion, with China also committing to buy huge amounts of energy, agriculture and services, South China Morning Post reported.

The trade deal to be signed this week will include pledges by China to buy US$200 billion of US goods over two years in four industries, a Trump administration official and two other sources briefed on the matter said.

The target for manufactured goods purchases will be the largest, worth around US$75 billion. China will also promise to buy US$50 billion worth of energy, US$40 billion in agriculture and US$35 billion to US$40 billion in services, the three people said.

On Monday night, meanwhile, the United States removed China from a list of currency manipulators, a sign that the relationship between the world’s two largest economies was thawing slightly in the lead up to the signing of the phase one deal.

“In this context, Treasury has determined that China should no longer be designated as a currency manipulator at this time,” the US Treasury Department said.

Upon the announcement of the phase one deal in December, China also secured some tariff relief, with Washington cancelling tariffs that were due to come into force on December 15, and halving a 15 per cent tariff on US$120 billion worth of Chinese goods. However, 25 per cent tariffs on US$250 billion worth of Chinese goods remain in place.

Analysts have speculated for weeks about the purchases China could make in these sectors.
“Energy products are specifically mentioned in the section on ‘Expanding Trade’ in the fact sheet produced by the [Office of the United States Trade Representative] on December 13, 2019,” said Moody’s Analytics chief Asia-Pacific economist Steve Cochrane. “So it seems like a good possibility to be included in the details of the phase one agreement to be signed on Wednesday.”

US exports of crude oil and related products have fallen considerably since the trade war started, he added. During the four months of July-October 2019, the latest data available from the US Energy Information Agency, exports averaged about 7.2 million barrels per month, or about half the volume during the same period of 2017.

Questions remain about whether China can double its agricultural purchases from about US$20 billion in 2016, before the trade war began, to US$40 billion, as the Trump administration is touting.
But Rosa Wang, Shanghai-based analyst at agricultural data provider JCI China, said that she was “quite confident” that China could meet the targets. She suggested that most of the expenditure would be on soybeans, followed by smaller purchases of nuts and fruits, pork, poultry, corn, sorghum and ethanol by-products.

The deal will bolster intellectual property protection, and also has chapters on forced technology transfer, currency, and market access to key sectors in the Chinese economy, including financial services and agriculture.

It will contain an enforcement provision, through which the US will be unilaterally be able to reimpose tariffs should China not hold to its commitments, including the purchase agreements.

White House trade adviser Peter Navarro said in an interview with US broadcaster NPR on Monday that the enforcement mechanism permits US trade representative Robert Lighthizer to reimpose tariffs within a 90-day period.

“And if he thinks that hasn’t been addressed properly, we have [the right to impose a] proportionate response and the Chinese have promised not to retaliate,” said Navarro.

It is understood that there will be 200 invited guests in the East Room of the White House for the signing ceremony, with US President Donald Trump joining China’s Vice-Premier Liu He – who has led China’s negotiating team throughout the prolonged trade talks – in signing the document.

Finbarr Bermingham reports for the South China Morning Post from Hong Kong and Ben White and Doug Palmer report for Politico from New York and Washington, respectively.

Finbarr Bermingham has been reporting on Asian trade since 2014. Prior to this, he covered global trade and economics in London. He joined the Post in 2018, before which he was Asia Editor at Global Trade Review and Trade Correspondent for the International Business Times. Ben White is POLITICO Pro’s chief economic correspondent. Doug Palmer is a reporter for POLITICO.

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