The 18+ month trade war came to a close on Friday, December 13, 2019. The United States and China finally agreed to a “phase one” agreement that aims to help resolve trade tensions for 2020 and beyond.
Though details are still scant, the released info, so far, points to a promising future for international trade.
President Donald Trump has vowed to not pursue the new round of tariffs that was set for Sunday, December 15. Down to the wire, the two countries were able to come to an agreement that appears to be highly beneficial to both countries. Representatives said the trade war concluded with equality and mutual respect. Additionally, they believe the relief of these frictions will facilitate economic growth for both countries.
What’s the Agreement?
The basic agreement is this: The U.S. will offer tariff relief in exchange for an increase in the Chinese purchase of U.S. goods (worth several billion). They’ve also agreed to certain terms for intellectual property and currency rates.
President Trump has promised to start cutting tariffs on Chinese goods, as opposed to raising and adding tariffs as he had been. This was China’s primary goal in the trade war negotiations, so they could ensure trade out of China didn’t shut down. Tariffs aren’t totally gone, but they’re slowing and lowering.
The U.S. had a few objectives during the trade war, which appear to have been resolved with the phase one agreement.
First, the U.S. held concerns about intellectual property protection. In the written agreement, there is a chapter that addresses how to internationally protect American ideas and products from overseas “knock offs.”
Second, currency manipulation has been of concern. The exchange rate has created some trade obstacles, so they’ve offered solutions in another chapter of the deal.
In total, there are nine chapters in phase one written agreement that include:
Food + agricultural products
Exchange rate and transparency
Bilateral assessment and dispute settlement
The deal will require structural reforms to the way China handles trade in the above areas. Economic experts believe it’s entirely possible to implement, and these changes will be meaningful to stimulate more development in the Chinese economy.
Finally, President Trump hoped this trade war would actually incite more economic growth for both countries. The purchase of billions of dollars in agricultural products from the U.S. will stimulate the U.S. economy, but it will also benefit Chinese workers, health, and economic growth.
What are the Benefits of the Agreement?
The phase one agreement is set to…
Enhance intellectual property rights protection, especially for outsourcing products.
Expand market access and improve commerce.
Safeguard the legitimate rights and interests of companies. This includes Chinese firms and American firms in China.
Rebalance, and ideally strengthen, the relationship between the U.S. and China through trade.
What if China Doesn’t Follow Through?
China has demonstrated a lack of follow-through on previous trade deal promises with America. Thus, one of the stipulations of the agreement includes a firm resolution system. This outlines the implementation and enforcement of the agreement, so neither side can drop the ball (and launch us back into a trade war).
We hope that this resolution will relieve tensions, improve trade, and scale up the economy. Removing the tariffs will allow the market to blossom naturally, while additional protections and the large purchase of goods will create safer and more expansive operations for American businesses in China.
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