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U.S. President Donald Trump and Chinese Vice Premier Liu He signed a trade agreement encapsulating phase one of continuing negotiations between the two countries to end a two-year standoff on tariffs. Under the agreement, China will increase its purchase of American made goods and services by $200 billion through 2021. In return, the U.S. will reduce tariffs from 15% to 7.5% on approximately $120 billion in goods manufactured in China and imported to the U.S.
As part of the $200 billion in additional imports, China has agreed to spend an additional $32 billion on U.S. agricultural products over the next two years. The provision is intended to help U.S. farmers who have seen their market share significantly reduced in China over the past few decades and been one of the industries most affected by the trade war.
The agreement also includes commitments by China to strengthen protection of the intellectual property rights of U.S. companies in China and reduce barriers for foreign financial institutions to operate in the country. China did not agree to change any of its laws and regulations but made a pledge to improve in these areas. The agreement also reduces the threat of tariffs by the two countries on additional imported goods and services.
The agreement and trade dispute between the U.S. and China will have a lasting impact on the operations of companies with a presence in China and, in turn, on corporate mobility.
First, the pledge by China to buy $200 billion in U.S. products means that China will likely spend that amount less on goods and services produced domestically or imported from other countries. Second, the trade dispute has already changed the planning of many companies as they diversify their manufacturing and Asia operations and opening plants and offices in other countries like Malaysia and Vietnam.
The trade agreement did not address a number of issues the U.S. had pressed related to Chinese state-owned enterprises and subsidies to Chinese companies. It also does not cover tariffs on hundreds of billions of other products or Chinese tariffs on a vast majority of imported U.S. goods and products. The Trump Administration hopes to resolve these issues as part of the next round of continuing negations. President Trump has indicated that an agreement capping phase 2 of the discussions will likely not occur until after the U.S. elections in November.
While there is much to still be worked out between the U.S. and China, the agreement marks a significant de-escalation in the trade dispute.
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