With some relief, the news overnight was that the US and China...

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    With some relief, the news overnight was that the US and China finally signed the Phase One trade deal.

    So what's the deal?

    Here are some of the deal’s core pieces (read the full agreement here):
    • It calls for China to submit an “Action Plan to strengthen intellectual property protection” within 30 days of the agreement taking effect, according to the trade pact. The proposal would include “measures that China will take to implement its obligations” and “the date by which each measure will go into effect.”
    • The deal says companies should be able to operate “without any force or pressure from the other Party to transfer their technology to persons of the other Party.” Technology transfers “must be based on market terms that are voluntary and reflect mutual agreement,” it reads.
    • The agreement says China will increase purchases of U.S. manufacturing, energy and agricultural goods and services by at least $200 billion over two years.
    • It makes commitments to try to root out the sale of counterfeit goods.
    • The deal includes provisions to boost Chinese market access to financial services firms.
    • Ahead of the signing, the Trump administration also revoked its decision to label China a currency manipulator.
    “We’re leaving tariffs on, but I will agree to take those tariffs off if we are able to do ‘phase two.’ In other words, we’re negotiating with the tariffs,” Trump said.

    Though the deal cuts U.S. tariffs to 7.5% on around $120 billion in Chinese products, it keeps in place levies on some $360 billion of Chinese imports. White House economic adviser Larry Kudlow told CNBC the U.S. will take “proportionate actions” if China doesn’t live up to its commitments, and defended Trump’s use of import duties to spur Beijing to negotiate.

    So the deal does not remove all the tariffs that US maintain as contingency should China fail to live up to their commitments.

    Here is the take from foreignpolicy.com

    U.S. and China Ink “Phase One” Trade Deal
    U.S. President Donald Trump and Chinese Vice Premier Liu He signed a “phase one” trade deal on Wednesday in Washington. Trump described it as a “momentous step,” but the reality is less clear. While the deal isn’t insignificant—China has promised $200 billion in purchases—it is still somewhat hypothetical. The question of the deal’s enforcement remains. How will the two sides, neither of which has a trustworthy record, put mechanisms in place to ensure that its promises are kept?
    So far, it doesn’t seem that they will. The sweeping U.S. goals to change the way China’s economy functions, from shrinking state-funded industries to strengthening intellectual property laws, are either absent from the deal or described in vague terms. The chances of such substantial change were always slim: China’s back would have to be up against the wall before the Communist Party gave up its key tools of economic control.
    Who has leverage? In practical terms, the phase one deal forestalls further escalation rather than scaling back measures in the short term. The trade war’s existing tariffs will likely remain in place until the U.S. elections in November, giving the United States potential leverage to hold China to its commitments—and perhaps creating the opportunity to boost the markets to aid Trump’s campaign. While Chinese state media has remained relatively quiet on the deal, the general line seems to be that the trade war isn’t over yet.
    Hawkish dissent. There has always been a split within the Trump administration between the China hawks and the business-minded voices, whose interest in China was more about markets than ideology. While the preliminary deal with China is a victory for the business-minded, the hawks still dominate in other policy areas. U.S. Secretary of State Mike Pompeo’s rhetoric toward the Chinese Communist Party has grown more aggressive, and tensions are still high over the Chinese technology giant Huawei.

    Whats my take?

    With one less uncertainty removed it is certainly a welcoming outcome. The removal of uncertainty is in respect of the removal of further escalation at least in the short term rather than a long term resolution.

    I will wait for some analyses I can find to determine if the deal is all that great for America. Don't forget that for a good year plus, China had transferred its purchases of US farm products to other countries (notably South America) so the large part of the agri product purchase commitments may well be making up earlier lost grounds. However, this is not as relevant for market analyses as it is to the American people.

    But with one uncertainty removed and a win for Trump, the next uncertainty may well appear. Emboldened by this "win" , POTUS may well take the next step to impose tariff on Europe, something which had been in his radar for some time. After all, the markets have been able to scale even higher with each of this "trade crisis" so lets do it.

    So even with this signing, one of the 3 conditions I set out in Q3 last year about returning to the market , and that is full removal /unwinding of all existing tariffs , has not even materialised.  The bottom line is in any case, the economic effects of these tariffs have long sown the seeds in the US local economy and the question remains if it (US economy) is robust enough to absorb these business conditions without spiraling towards a contraction. The verdict will be known in the months ahead.
 
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