Sceptics cast doubts on first phase of US-China trade deal

The initial trade deal signed by the United States and China helps to defuse an 18-month dispute between the world’s two largest economies, but leaves many points of contention unresolved, analysts and industry leaders say.

They remain sceptical that the US-China trade relationship is on the mend as the deal fails to fully eliminate tariffs that have slowed the global economy, sets hard-to-achieve purchase targets for China and does not address concerns over Chinese subsidies of state-owned firms.

While acknowledging the need for further negotiations with China to solve a host of other problems, US President Donald Trump hailed the agreement as a win for the US economy and his administration’s trade policies.

“Together, we are righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers and families,” Trump said in rambling remarks at the White House alongside US and Chinese officials.

Chinese Vice Premier Liu He read a letter from President Xi Jinping in which the Chinese leader praised the deal as a sign the two countries could resolve their differences with dialogue.

Still, analysts are concerned that China may not be able to meet a pledge to buy at least $200bn worth of US farm products and other goods and services over two years, a higher amount than a baseline of $186bn in purchases in 2017 before the US began imposing punitive tariffs.

“It looks to me (like) a very big concession on China’s side. I don’t see how China can fulfil its commitments without increasing subsidies to domestic producers,” Dan Wang, an analyst at The Economist Intelligence Unit (EIU), told Al Jazeera.

“Domestic producers will suffer a lot…(the deal) means direct competition for Chinese farmers, who are mostly small-scale and not competitive in this field,” she added.

Liu said Chinese companies would buy $40bn in US agricultural products annually over the next two years “based on market conditions.” Beijing had baulked at committing to buy set amounts of US farm goods earlier, and has signed new soybean contracts with Brazil since the trade war started.

Soybean futures, which traded 0.4 percent lower throughout much of the deal-signing ceremony, sank even further after Liu’s remarks, a sign that farmers and traders were dubious about the purchase goals.

Brazil and other countries that export goods and services to China are likely to suffer under the initial trade deal as China will reduce its purchase of goods from other countries, said Yun Jiang, co-editor of China Neican.

Rare earths included

China’s other commitments under the Phase One deal include $54bn in additional energy purchases, $78bn in additional manufacturing purchases, $32bn more in farm products, and $38bn in services, according to a deal document released by the White House.

It also agreed to buy two types of rare earth metals from the US, a surprising move for China, which is the top global producer of the specialized minerals used to make electronics, military weapons and other hi-tech equipment.

Scandium and yttrium, two of the 17 rare earths commonly used in lighting and computers, were among the hundreds of US products that China agreed to buy more of from the US over the next two years.

The trade agreement does not involve neodymium or praseodymium, the two most commonly used types of rare earths that are also mostly produced by China.

Neither scandium nor yttrium is currently produced in the US. However, several smaller mining firms are developing US mines to produce them and other rare earths.

The initial trade deal effectively gives those firms a guaranteed customer, a step that should help in the hunt for project financing.

“This provides an additional market for US producers,” said Anthony Marchese, chief executive of Texas Mineral Resources Corp, which is developing the Round Top mine in Texas with USA Rare Earth.

The US has also been in talks with Australia to develop a rare earths mineral supply plan to boost supplies from sources other than China.

Trump and his economic advisers had pledged to attack Beijing’s long-standing practice of propping up state-owned companies and flooding international markets with low-priced goods as the trade war heated up.

The US president also said China had pledged action to confront the problem of pirated or counterfeited goods and said the deal included strong protection of intellectual property rights.

The deal contains stronger Chinese legal protections for patents, trademarks and copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods, the US Trade Representative office said.

‘Tariffs to stay’

The Phase 1 deal, reached in December, cancelled planned US tariffs on Chinese-made mobile phones, toys and laptop computers, and halved the tariff rate to 7.5 percent on about $120bn worth of other Chinese goods, including flat-panel televisions, Bluetooth headphones and footwear.

But it will leave in place 25 percent tariffs on a $250bn array of Chinese industrial goods and components used by US manufacturers, and China’s retaliatory tariffs on over $100bn in US goods.

Tariffs on Chinese imports have cost US companies $46bn and evidence is mounting that tariffs have raised input costs for US manufacturers, eroding their competitiveness.

Diesel engine maker Cummins Inc said on Tuesday the deal will leave it paying $150m in tariffs for engines and castings that it produces in China. It urged the parties to take steps to eliminate all the tariffs.

Trump, who has been touting the Phase 1 deal as a pillar of his 2020 re-election campaign, said he would agree to remove the remaining tariffs once the two sides had negotiated a “Phase 2” agreement.

“They will all come off as soon as we finish Phase 2,” said Trump, who added that he would visit China in the not-too-distant future.