Phase 1 of the deal will reduce tariffs on both sides, increase China’s purchases of U.S. goods, and require China to make structural changes to its economy.
“President Trump’s strategy was exactly right. I think tough tariffs brought him to the negotiating table. I think that tough tariffs hurt their economy and made them much more amenable to a good deal,” said Larry Kudlow, Director of the United States National Economic Council.
“Ultimately, the hammer that Trump holds over China if they start cheating on this deal is that the tariffs will come back. And those tariffs, you know, have hurt the Chinese economy and they’ve hurt the United States, but they’ve also hurt China. And so the only real leverage Trump has in my opinion, is the threat of tariffs being reimposed,” said Kudlow.
Others refer to the bottom line, a calming down of an 18-month trade war that has slowed global growth.
“At the very least, this is a truce, and at the very least, it means there will not be an escalation of tariffs in 2020. And so that’s very good news for investors, for businesses and for workers,” said Stephen Moore, an economist at The Heritage Foundation.
Moore says a phase two deal is unlikely before the November election. Likewise, President Trump has said much of the success of Phase 2 will depend on the success of Phase 1–which will be closely watched in the next few months.
Some businesses are cautiously optimistic.
“We work with both Chinese companies and U.S. importers. So Chinese exporters, U.S. importers, and also U.S. exporters to China. So all of them are watching this very closely. And certainly, the reduction in tariffs helps boost both the U.S. importers because they have to pay those tariffs,” said Mark Ludwikowski, leader of Clark Hill’s International Trade Practice.
“We are we are optimistic that it will work, and that China is serious about making it work,” said Ludwikowski.
“We will definitely need to keep an eye on what happens in the next, I would say the next quarter next few months, because if purchases are not being made by China, if enforcement is not strong enough, then we could start hearing some concerns from the U.S. industries,” said Ludwikowski.
Critics argue the deal is not good enough.
“So this ‘phase one’ deal is an extreme disappointment to me and to millions and millions of Americans who want to see us make China play fair,” said Sen. Chuck Schumer (D-N.Y.).
“We’ve seen this over and over again. China agrees to something and they don’t do it,” said Schumer.
Whether China will abide by its word remains the biggest question.
The agreement comes complete with a dispute settlement and enforcement mechanism, which takes about 90 days to complete. If China fails to adhere to the deal, the United States can reimpose the withdrawn tariffs.
