China commits to purchasing $200 billion of U.S. good as part of Trump's 'phase one' trade deal but can the deal be enforced?
After two years of excruciating talks, tit-for-tat exchanges, and political theatre, President Trump’s phase one trade deal with China is here. After a choppy premarket session, the Dow Jones Industrial Average (DJIA) opened marginally higher as traders digest the details.
Here’s what we know so far. According to Reuters, the headline figure is that China will commit to buying $200 billion of U.S. goods over the next two years.
It breaks down as follows. $80 billion of manufacturing goods, $50 billion in energy supplies, $35 billion in services, and $32 billion in agriculture.
“[It’s] a really, really good deal for the United States.” – Robert Lighthizer, United States Trade Representative.
The Dow Jones held strong on Tuesday, despite a choppy overnight session which saw futures contracts swing 100 points and back again. Traders battled to make sense of the trade deal commitments and what it means for the stock market.
If the details are accurate, it’s a huge commitment from the Chinese. The $200 billion figure is an enormous increase on the current level of U.S. imports to the country.
In return, Trump has removed China from its list of “currency manipulators.”
But can this commitment be enforced? Some analysts aren’t convinced. One source cited by Reuters, is worried that there are no hard enforcements in the deal as written. Indeed, there’s concern that China will rollback its commitment if the agreement leads to higher prices or supply shocks.
Speaking to the $50 billion energy pledge, Beijing-based SIA Energy analyst Seng Yick Tee said:
It’s too aggressive and unlikely to be achieved.
The stock market has soared to record highs on hopes of trade deal detente. But the Chinese government has reminded the world that ‘phase one’ is just the start.
A social media account linked to the Chinese government published a statement last night warning that this is just “the first round.”
We must bear in mind that the trade war is not over yet – the US hasn’t revoked all its tariffs on China and China is still implementing its retaliatory measures. There are still many uncertainties down the road.
If the phase one details are correct, Boeing (NYSE: BA) will likely be a huge beneficiary. China’s commitment to purchase $80 billion of manufactured goods is good news for Boeing and other manufacturers.
Boeing stock is also bouncing back from the tragic plane crash in Tehran last week. Iran admitted to shooting down the 737-800, absolving Boeing from concerns of technical or software faults.
Today’s focus also shifts to the Wall Street bank JP Morgan which reports earnings before the bell today. As a Dow Jones constituent, the company’s results could set the tone for the session ahead.
This article was edited by Samburaj Das.
Last modified: January 22, 2020 11:39 PM UTC