United States and China formally sign ‘Phase One’ trade deal

As expected, the United States and China today officially inked the “Phase One” trade deal that was initially announced in mid-December.

The office of the United States Trade Representative (USTR) said that the U.S. will be maintaining 25% tariffs on approximately $250 billion of Chinese imports, coupled with 7.5% tariffs on approximately $120 billion worth of Chinese imports, down from an original levy of 15%. And 15% duties that were to be effective on List 4B items, which were to originally take effect December 15, will not be assessed.

As for China, a Reuters report indicated that, as per the terms of the Phase One deal, China will purchase at least an additional $200 billion worth of U.S. farm products and other goods and services over two years, over a baseline of $186 billion in purchases in 2017. And it added that he deal would include $50 billion in additional orders for U.S. agricultural products, with President Trump confident that U.S. farmers would be able to meet the greater demand, saying China would buy $40 billion to $50 billion in additional U.S. services, $75 billion more in manufacturing goods, and $50 billion more worth of energy supplies.

“Today we take a momentous step, one that has never been taken before with China toward a future of fair and reciprocal trade with China,” President Trump said at a White House ceremony today. “Together we are righting the wrongs of the past.”

Since the White House began levying tariffs other nations more than years ago, under the premise of its stated “America First” policy geared towards a more fair and beneficial position for U.S. companies it has strained global supply chain operations to a large degree, while creating confusion and tension for shippers needing visibility and consistency within their supply chains.

That situation has been played out at various times over the last two years especially, with importers “pulling forward” China-manufactured goods into the U.S. in order to get ahead of scheduled tariff increases and has been viewed as a key driver of tariff-related uncertainty. Another byproduct of the tariff tension, or U.S.-China “trade war” has been seen in sourcing upticks from other Asian manufacturing hubs such as Vietnam, Malaysia Singapore, and Thailand, among others.

The trade war has also had a negative impact on the manufacturing sectors, too, a key cog of freight activity, which was evidenced in declines of new orders, which essentially serves as a benchmark for demand.

“In broad terms, it is good news that there is a Phase One deal,” said Chris Rogers, research director for global trade intelligence firm Panjiva. “There had been what looked like a proper and peace offering, with things not getting any worse [between the U.S. and China]. That is a cause for optimism, in terms of improving relationships going forward for a possible ‘Phase Two,’ or whatever it may be called. The outlook is at least stable from where we are now.”

The impact of the myriad uncertainties related to the ongoing trade tension has led to companies curtailing investing and spending when they are unsure of what the rules are going to be, Rogers explained, adding that having Phase One in place in a reasonably transparent manner as it relates to what the tariffs and Chinese purchases will be, as well as long-term and short-term policy should be viewed as good things and will help businesses return to normal for decision-making processes. 

“The challenge is how the enforcement is going to work,” noted Rogers. “That is really important, because if there is any sign of backsliding or these commitments not being made, the White House can put tariffs up very quickly. It is going to be a situation where there is a really close focus on shipping data and if China is buying what it said it would buy. At the end of the day, we have an administration in the U.S. that can be quick to make decisions good or bad. I don’t think the game is over.”

Ben Bidwell, director of U.S. Customs for C.H. Robinson, said that with the Phase One deal in place, everything is on the table for shippers.

“The resounding answer has been to prepare for uncertainty,” said Bidwell. “Yes, we have a Phase One deal, but we have had some other promising and positive steps in the past that have not necessarily come to fruition. With the initial announcement of the Phase One deal, there has certainly been a lot of positive reaction. But as shippers took a step back and really understood what that meant, I think that lessens to a certain extent.”