Signing of the Phase I trade deal marks an end of the beginning the trade war between the US and China. While the deal covers various areas of great concerns to the US, including China’s imports of US goods and services, China’s handling of intellectual properties, technological transfer and the financial services industry, and renminbi movement. Execution of the promises remains to be seen.

As agreed in the deal, China would increase imports worth of US$200B from the US during a two-year period from January 1, 2020 through December 31, 2021. Specifically, US$75 would be spent on manufactured goods, $50B on energy products, $40B on agriculture products, and $35-40B on services. Imports of manufactured goods would be no less than $32.9B in 2020 and $44.8bn in 2021. Import on energy products would be at least $18.5bn in 2020 and $33.9B in 2021. Meanwhile, purchases of agricultural goods would be at least $12.5B in 2020 and $19.5B in 2021, while those on services would be no less than $12.8B in 2020 and $25.1B in 2021. The above imports plan would be equivalent to 0.7% of China’s GDP in 2018. We expect limited impacts on China’s economy. China imported $122.7B worth of US imports in 2019, down about 20% from a year ago. The promise of additional purchase would imply doubling of demand in the coming 2 years. How is this additional purchase is absorbed domestically is a problem. We expect increase in purchases from the US means decrease in demand from other trading partners of China.

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