· The foreign exchange market held steady on Monday, with the U.S. dollar slightly lower, in anticipation of further details on the U.S.-China trade agreement.
The “phase one” trade deal between Washington and Beijing has been “absolutely completed,” National Economic Council Director Larry Kudlow told Fox News Channel on Monday, adding that U.S. exports to China will double under the agreement.
The deal, announced on Friday after more than two and a half years of on-off negotiations between Washington and Beijing, will reduce some U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of U.S. agricultural, manufactured and energy products by some $200 billion over the next two years.
But although China’s trade delegation expressed optimism about the deal, some government officials were cautious. The deal “is a phased achievement, and does not mean that the trade dispute is settled once and for all,” said a Reuters source in Beijing with knowledge of the situation.
Caution over the future of trade talks pushed the dollar index .DXY down 0.15%, last at 97.030. The trade-sensitive Chinese yuan CNH= and Australian dollar AUD= were both off last week's four-month peaks.
The euro EUR=, which had spiked on Friday to a four-month high of $1.1199 against the dollar, retraced most of those gains, last at $1.1146, nevertheless up modestly over the course of Monday's trade. The yen JPY=, a safe-haven asset which benefits from market uncertainty, reached a two-week low on Friday. It was fractionally stronger on Monday to last trade at 109.57 yen per dollar.
· Despite the US-China trade agreement, key details are unclear
After the U.S. and China announced the “phase-one” trade agreement, a critical point remains in question: agricultural purchases.
Bilateral trade is a significant part of the dispute between the world’s two largest economies, especially after both sides decided to break the negotiations into phases, rather than tackling a slew of American concerns, which range from the trade deficit in goods to state control in the economy.
On Friday, both countries held separate press conferences to announce that they reached the phase-one agreement.
President Donald Trump said the Chinese would buy $50 billion in agricultural purchases “pretty soon.” More specifically, Reuters reported that U.S. Trade Representative Robert Lighthizer told reporters that China would buy at least $16 billion more agricultural goods in each of the next two years. The report said that could bring total purchases to near $50 billion in 2020 and 2021.
“That scale of purchases seems implausible and Chinese officials were reluctant to mention any specific target during their press conference,” Nomura analysts, including chief China economist Ting Lu, said in a note released Saturday, Beijing time.
It’s still unclear how and when the U.S. will roll back other tariffs, a condition for a phase-one deal that the Chinese side has firmly maintained. The Office of the U.S. Trade Representative said in a statement that the United States will keep 25% tariffs on about $250 billion of Chinese imports, along with 7.5% duties on roughly $120 billion of Chinese imports.
Both sides also still need to sign the text of an agreement, which Chinese officials said requires legal review and translation. Lighthizer said both countries hope to sign the deal in Washington in early January, and there would be no new tariffs as long as China negotiates in good faith.
· China ramping up agricultural purchases to the level that the U.S. is demanding would be a problem and Beijing would probably only do it if the market situation warranted it, analysts said.
Their comments pour skepticism on the farm purchases that are part of the phase one trade deal recently announced by both countries.
Calling it a “crazy amount” of agricultural buying with “market distorting powers” on a global scale, Deborah Elms, executive director of the Asian Trade Centre, said: “The ramping up of scale at that speed is going to be problematic.”
She told CNBC: “I would be willing to take a bet ... that we will be back at this table in relatively short order even if we get a deal, because the ability of the Chinese to actually match those purchases is going to be limited.”
· Looking at the latest U.S.-China trade numbers, one wonders how the agreement announced last week could lead to an acceptable balance of bilateral trade accounts.
China’s surplus on its U.S. goods trade in the first ten months of this year was $294.5 billion, and amounted to 40% of America’s total trade gap.
During the same period, Beijing slashed U.S. exports to China 14.5% to $87.6 billion. By contrast, Chinese goods sales to the U.S. were more than four times larger at $382.1 billion.
In spite of that, reports indicate that Beijing promised to increase — over the next two years — its purchases of U.S. goods and services by $200 billion.
If that’s all Beijing is offering, its exports to the U.S. would have to be halved from their current annual rate of $462.4 billion to reach a meaningful narrowing of the U.S. trade deficit with China.
· President Donald Trump on Monday said he would be disappointed if something is “in the works” in North Korea and the United States is watching activities in the Asian nation closely.
“I’d be disappointed if something would be in the works, and if it is, we’ll take care of it,” Trump said. “We’re watching it very closely.”
· Oil prices rose slightly Monday on hopes energy demand will benefit from the trade deal between the United States and China announced last week, but prices remained below the previous session’s three-month highs.
Brent crude oil futures rose 16 cents to $65.37 a barrel, while West Texas Intermediate crude rose 14 cents to settle near a three-month high of $60.21 a barrel.
On Friday, Washington and Beijing announced a “phase one” agreement. U.S. officials said some tariffs would be reduced in exchange for a big jump in Chinese purchases of American farm products and other goods.
Reference: CNBC, Reuters
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