'Deal of the decade'

The expectations were receding about the ending of confrontation between China and the United States over the growing trade tensions that could engulf the entire world but the signing of the agreement between US President Donald Trump and Chinese Vice Premier Liu He on 15th January in Washington would definitely serve to ease some of those concerns. At the signing ceremony in the White House, Trump declared that "today, we take a momentous step, one that's never taken before with China" that will ensure "fair and reciprocal trade." Trump thanked Chinese leader Xi Jinping, saying that he would visit China in the not-too-distant future. He also said that "negotiations were tough on us but they had led to this really incredible breakthrough. Together we are righting the wrongs of the past and delivering a future of justice and security for American workers, farmers and families." Trump said the US would remove tariffs if the two sides reach agreement in the next phase. The US was leaving them for the time being otherwise, we will not have any cards to play, Trump said. In a letter to Trump read out by Liu, the Chinese leader wrote that the deal is "good for China, for the US and for the whole world." However, the most difficult issues remain to be dealt with in "phase two" negotiations, including massive subsidies for state industry.

The centerpiece of the deal was a pledge by China to purchase at least an additional dollar 200 billion worth of US farm products and other goods and services over two years, over a baseline of dollar 186 billion in purchases in 2017. The deal would include dollar 50 billion in additional orders for US agricultural products. Besides, China would buy about dollar 40 billion in additional US services, dollar 75 billion more in manufacturing goods and dollar 50 billion more worth of energy supplies. In response, US cancelled planned US tariffs on Chinese-made cellphones, toys and laptop computers and halved the tariff rate to 7.5 percent on about dollar 120 billion worth of other Chinese goods, including flat panel televisions.

The initial trade deal between the US and China would of course defuse an 18-month conflict between the world's two largest economies and roll back some tariffs, concentrated mostly on boosting Chinese purchases of US goods and services. The signing of deal could definitely be called as a momentous step, particularly after months of start-stop talks punctuated by tit-for-tat tariffs that stoked fears of an acceleration of the trade war between China and the US and a further slowdown in the global economy. In fact, the global growth, investment and trade estimates were almost regularly lowered by various agencies in accordance with the acceleration of trade war between the two economies. Top White House economic advisor, Larry Kudlow, has revealed that the agreement will add 0.5 percentage point to US gross domestic product (GDP) growth in both 2020 and 2021. China and other countries will also get similar benefits besides the removal of the threat of growing protectionism which was looming on the economic horizon. The easing of US-China trade friction has already boosted stock markets around the world and could encourage entrepreneurs almost everywhere to fuel production in order to take advantage of the growing markets. According to some analysts, the deal could also help the reelection campaign of Donald Trump as it would financially benefit some important sectors of the US economy. However, it must be stressed that tariffs on hundreds of billions of dollars on imports would still remain in place, leaving American consumers and businesses to foot the bill. Moreover, it needs to be remembered that the success of 'Phase I' depends critically on the next phase 2 agreement. The US negotiators, in particular, were quite sceptic about the success of the agreement. That is why the 'Phase I' of the deal puts pressure on Beijing to stay at the negotiating table and make further commitments under the Phase II to resolve the issues that are still unresolved. Another concern could be the mercurial nature of President Trump who is known for breaking or violating agreements on his whims. He could disown the agreement at a very short notice if he becomes suspicious of Chinese intentions or of the advantages to the US. So far as Pakistan is concerned, the easing of trade tensions and the implementations of the agreement in letter and spirit between the two countries could be quite helpful for the country in boosting external trade and accelerate the growth process.