United States and China Reach Agreement on Phase One Trade Deal

I know, I know you have all heard it before, but hopefully the agreement reached this week between the US and China will lead to a signed Phase One Trade deal in January. The agreement requires a number of changes to China’s trade policies in exchange for reductions in tariffs by the US. Below is information on the specific parts of the new agreement.

Intellectual Property and Technology Transfer: This chapter addresses concerns in the areas of trade secrets, trademarks and enforcement against pirated and counterfeit goods. It sets out binding obligations to address unfair technology transfer practices of China that were identified in recent investigations. China commits to refrain from directing activities aimed at acquiring foreign technology that creates distortion in the marketplace.

Financial Services and Currency: A number of longstanding trade barriers to US financial service providers will be eliminated. This includes banking, insurance and securities among others. Removal of these barriers will allow US vendors to compete on a more level playing field. China will not use exchange rate manipulation or unfair currency practices to unfairly compete against US exporters.

Agriculture and Expanding Trade: This part of the agreement addresses barriers to trade and commitments from China to import increased amounts of various US goods and services based on 2017 as a benchmark. China’s commitments cover US manufactured goods, food and agricultural products, energy products and services. China’s increased imports of US goods and services are expected to increase over the next several years and should contribute to the rebalancing of the US – China trade relationship. Actual amounts of Agricultural trade vary in different reports. Soybeans have been our largest Ag export to China for many years. There needs right now have been affected by African Swine Fever, but their demand for pork, poultry and other protein products has increased to replace loses in domestic pork production and help control food inflation which has been running double digit increases per month recently.

We did see a small rally in grain prices this week on the announcement of this agreement and corn sales to Mexico after our new North American Trade Agreement was completed as well. Some traders are still taking a wait and see attitude until the agreement with China is signed and we see some actual product purchases by China. The US will not expand tariffs on the 15th as was planned if no agreement could be reached.

Call Dave at Miesville with any questions.