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China just agreed to buy $200 billion worth of US products

19/01/2020

China has agreed to buy hundreds of billions of dollars worth of products from the United States as part of their "phase one" trade deal.

The agreement signed Wednesday will have Beijing purchase an additional $200 billion of US goods and services over the next two years.

The increase in purchases will be compared to 2017, before the trade war started. China imported over $185 billion in total US goods and services that year.

In exchange, Washington has agreed to reduce tariffs on $120 billion in Chinese products from 15% to 7.5%.

Taken together, the phased purchases by China would result in a dramatic surge in US exports. Total exports to China would increase to over $260 billion in 2020, and roughly $310 billion in 2021 if the deal holds.

"We think it is highly challenging for China to import $200 billion more goods and services from the US over the next two years without reducing imports from elsewhere," said analysts at UBS.

Agricultural goods account for a big chunk of the new purchases. Under the agreement, China will buy an additional $12.5 billion of those goods in year one, and then $19.5 billion in year two, compared to 2017.

Among the products it has promised to buy are soybeans, pork, cotton and wheat. Trade in soybeans and pork in particular has been hit hard as tensions have escalated between the world's two largest economies.

Both products were among thousands of US goods hit by Chinese tariffs in July 2018, in response to the Trump administration's taxes on $34 billion of Chinese goods.

In addition to the purchases announced on Wednesday, the initial deal provides better protection to American companies that have long complained about thefts of their intellectual property and trade secrets.

It also loosens up requirements for banks wanting to operate in China and imposes anti-counterfeiting measures that, if broken, would lead to penalties.

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Beijing's pledges go further than China has in the past, but the agreement doesn't require the government to change any laws or regulations.

And China still didn't give ground on some of the most important issues for America, such as demands for cuts to state subsidies that could trigger a fundamental overhaul of how the Chinese economy works. That is among several sticking points that the two sides are expected to discuss for the next phase of the agreement.

For now, the deal is expected to bring some relief to Chinese manufacturers, who have suffered from tariffs that made their goods more expensive. It also lifts some of the uncertainty that had been clouding companies' decisions to invest in China.
Additionally, the agreement fits neatly into one of Beijing's key goals: to diversify its economy and reform its financial system. China's central bank said in a statement Thursday that the deal would help it continue to open up the country's financial sector.

Going forward, a senior US administration official told reporters that Washington would be "actively monitoring" data sources from both countries to ensure that China is fulfilling its promise.

Source: CNN Business