“This is the biggest deal that anybody’s ever seen”, Donald Trump said, his penchant for superlatives on full display while summing up the “Phase One” trade deal with China, which, despite spanning 86 pages, is still being described as short on substance and concrete commitments.
Flanked by Bob Lighthizer, Steve Mnuchin, Liu He, Yi Gang and other officials from both sides of the negotiating table, Trump delivered a marathon ramble-fest that found the US president thanking and otherwise shouting-out dozens of allies, executives, businesspeople, politicians and even his own family members.
“Honeywell, great company, thank you very much”, Trump effused. “Great equipment you make, I have a lot of it”, the president endeavored. “I use a lot of it”.
Trump employed mild profanity (“Where the hell is he?”), berated Democrats (impeachment is a “hoax”), derided previous administrations (“I don’t blame China, I blame the people that used to be standing right here”) and even demanded JPMorgan thank him for the bank’s Q4 earnings blowout (“They just announced earnings and they were incredible… Will you say `Thank you Mr. President,’ at least?”).
At one point, Trump asked Kevin Warsh why he wasn’t more forceful in promoting himself for Fed Chair.
“Why weren’t you more forceful when you wanted that job?” Trump asked. Then, he spent roughly three minutes lamenting Fed policy and pondering negative rates overseas.
Of Peter Navarro, Trump said: “He’s a little different”. There was nervous laughter from the crowd.
“I could use some good legal advice. Do you have some good lawyers? Ah, to hell with it”, Trump mused, as a captive audience tried to muster enough laughs to placate him. “I’ll just have to suffer the way I’ve suffered all my life”.
“Roughly 30 minutes of ad-libbed intros of lawmakers and executives — including a suggestion Kevin Warsh should be running the Fed — and Trump is back on prompter”, CNBC’s Kayla Tausche remarked. “The Chinese delegation has been standing by”.
“Trump is out here doing an improv comedy routine”, Vox’s Aaron Rupar marveled.
It went on for so long that even Melissa Francis was forced to tap out.
After nearly an hour, Liu was allowed to speak. The next step is the earnest implementation, he said, in stoic remarks. He asked that the US treat Chinese companies fairly and called the deal “mutually beneficial”. China has been careful to insist that Trump did not pitch the agreement as in any way one-sided.
China, Liu promised, will “strictly” honor the deal, and will “open itself even wider”. The two countries share “enormous common commercial interests”, the Vice Premier said.
Eventually, the two men signed the agreement.
As for the broad strokes details, here is a bullet point summary:
- FX issues will be referred to the bilateral agreement
- The two countries will communicate regularly and consult on FX markets
- Both sides agree to refrain from competitive FX devaluation
- China will allow full foreign financial ownership by April 1
- The deal sets up a mechanism to resolve drug patent disputes
- The US and China agree to respect one another’s monetary policy autonomy
- China will speed up market access for investment banks
- China will buy $52.4 billion additional US energy products (including LNG, oil and coal) over 2020-2021, including $18.5 billion in 2020 and $33.9 billion in 2021.
- Visa, Mastercard and Amex win access to China’s payments market
- China will buy an additional $32 billion in US farm products over 2020-2021, including $12.5 billion in 2020 and $19.5 billion in 2021
- China will allow US investors to buy non-performing loans
- China will “strive” to buy an additional $5 billion per year in US farm goods on top of those stipulated above
Running through the actual language, the passage from the agreement on Chinese purchases reads as follows:
During the two-year period from January 1, 2020 through December 31, 2021, China shall ensure that purchases and imports into China from the U.S. of the manufactured goods, agricultural goods, energy products, and services identified in Annex 6.1 exceed the corresponding 2017 baseline amount by no less than $200 billion.
Visually, that $200 billion breaks down like this:
The relevant passage on FX markets is as follows:
1. Issues related to exchange rate policy or transparency shall be referred by either the U.S. Secretary of the Treasury or the Governor of the People’s Bank of China to the Bilateral Evaluation and Dispute Resolution Arrangement established in Chapter 7 (Bilateral Evaluation and Dispute Resolution).
2. If there is failure to arrive at a mutually satisfactory resolution under the Bilateral Evaluation and Dispute Resolution Arrangement, the U.S. Secretary of the Treasury or the Governor of the People’s Bank of China may also request that the IMF, consistent with its mandate: (a) undertake rigorous surveillance of the macroeconomic and exchange rate policies and data transparency and reporting policies of the requested Party; or (b) initiate formal consultations and provide input, as appropriate.”
As to IP protection and forced technology transfer, the deal offers this:
The Parties affirm the importance of ensuring that the transfer of technology occurs on voluntary, market-based terms and recognize that forced technology transfer is a significant concern. The Parties further recognize the importance of undertaking steps to address these issues, in light of the profound impact of technology and technological change on the world economy.
The U.S. recognizes the importance of intellectual property protection. China recognizes the importance of establishing and implementing a comprehensive legal system of intellectual property protection and enforcement as it transforms from a major intellectual property consumer to a major intellectual property producer. China believes that enhancing intellectual property protection and enforcement is in the interest of building an innovative country, growing innovation-driven enterprises, and promoting high quality economic growth.
And finally, on financial services:
|“China shall allow U.S. financial services suppliers to apply for asset management company licenses that would permit them to acquire non-performing loans directly from Chinese banks, beginning with provincial licenses. When additional national licenses are granted, China shall treat U.S. financial services suppliers on a non-discriminatory basis with Chinese suppliers, including with respect to the granting of such licenses.”|
|“No later than April 1, 2020, China shall remove the foreign equity cap in the life, pension, and health insurance sectors and allow wholly U.S.-owned insurance companies to participate in these sectors. China affirms that there are no restrictions on the ability of U.S.-owned insurance companies established in China to wholly own insurance asset management companies in China.”|
|“No later than April 1, 2020, China shall eliminate foreign equity limits and allow wholly U.S.-owned services suppliers to participate in the securities, fund management, and futures sectors.”|
“China affirms that a wholly U.S.-owned credit rating services supplier has been allowed to rate domestic bonds sold to domestic and international investors, including for the interbank market. China commits that it shall continue to allow U.S. service suppliers, including wholly U.S.-owned credit rating services suppliers, to rate all types of domestic bonds sold to domestic and international investors. Within three months after the date of entry into force of this Agreement, China shall review and approve any pending license applications of U.S. service suppliers to provide credit rating services.
Each Party shall allow a supplier of credit rating services of the other Party to acquire a majority ownership stake in the supplier’s existing joint venture.”
Already, there are complaints about a lack of details. Soybean futures fell to a four-week low as Trump spoke, but pared losses after the signing.
As noted on Tuesday, the vast majority of the tariffs are expected to remain in place until the US election is over. There was some mention that duties could be removed once “Phase Two” is complete. Of course, nobody knows when that will be. Trump said talks will start immediately, but take that with a grain (or maybe a whole shaker) of salt.
Describing negative interest rates during his painfully long preamble, Trump said “I don’t know where that all leads… but this is one that I like, very much”.
One imagines market participants are thinking something broadly similar about the “Phase One” deal. Nobody knows where it all leads, but for now, “this is one that we like very much”, considering the alternative is an economic cold war between the world’s two economic superpowers.