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U.S-China Trade War On 11 October, U.S. officials announced a “Phase 1” partial deal with China was in the works. While short on detail, ...

U.S-China Trade War (Special Survey)

U.S-China Trade War

On 11 October, U.S. officials announced a “Phase 1” partial deal with China was in the works. While short on detail, the deal will supposedly include terms on Chinese purchases of agricultural goods, intellectual property provisions and a currency pact. Moreover, the U.S. cancelled the tariff hike that was scheduled for October, which would have increased duties from 25% to 30% on USD 250 billion of Chinese goods. Following the announcement of the deal, U.S. President Trump boasted that China would increase its purchases of American farm products to USD 40-50 billion a year. However, while Chinese officials confirmed the country would boost its spending, an official figure was not released. China purchased only USD 9 billion in U.S. agricultural commodities in 2018, down from USD 20 billion in 2017.

Despite signs of progress, the nearly two-year-long trade war remains shrouded in uncertainty, especially as the terms of the mini-deal have not yet been put in writing. Officials hinted that the phase 1 deal could be signed by the two leaders at the upcoming APEC meeting in Chile in mid-November. Even so, Trump acknowledged the deal could fall apart before then.

The reported partial deal, while covering some trade issues, generally picked the low-hanging fruit, leaving the more difficult issues for a later time. The deal may boost business sentiment in the short-term and could bring some reprieve to the industries that have been most affected by the trade dispute, such as the agricultural sector, thus reducing the drag on growth in the final quarter of 2019. However, FocusEconomics panelists and markets alike are not overly optimistic the two sides will resolve the thornier disagreements; a comprehensive agreement will be essential in order to provide lasting support to business confidence and boost investment.