The US-China Trade Deal: Why it Matters for Businesses

The ongoing trade tensions between US and China, two of the world’s most powerful economies,  have affected the global trade landscape and changed the way businesses operate. The tariffs on goods have affected business owners as profits dwindled and losses extended with the diversion of trade to other countries in the absence of Chinese exports to the US.  

The trade talks between the US and China had been postponed several times due to a number of disagreements between both sides. One of those was China’s hesitation to commit to a specific amount of US farm goods. In return for that commitment, China demanded that tariffs previously imposed be rolled back.

The 19-month tit-for-tat tariff war between the two economic giants started to take a toll on the economy as exports fell from 30% to 70% after tariffs were imposed. Such broad repercussions then led them to agree to end the trade conflict. On October 11, 2019, the outline of phase one of the deal was presented, requiring both parties to make substantial efforts in understanding the key issues and forge an agreement that is beneficial for both sides.

At a Glance: The Ongoing US and China Trade Negotiation

The signing of the phase one trade deal would have been a step closer to a full resolution of the trade conflict that would not only restore investor’s confidence but also improve and further open up global business opportunities. 

US President Donald Trump and Chinese President Xi Jinping were scheduled to attend the Asia-Pacific Economic (APEC) Summit on November 16 at Santiago, Chile. Unfortunately, due to the ongoing protests, the event was cancelled and the signing of the deal postponed as officials scrambled to find an alternative location.

The signing of the phase one trade deal dragged on as both parties seemed to be unable to reach an agreement, leading to a statement by the   Executive Vice President and Head of International Affairs at the US Chamber of Commerce, Myron Brilliant, that a deal might not be possible by December 15. This was further reinforced when President Trump announced that the trade deal with China might not be completed until after the 2020 US Presidential elections.

Fortunately, on December 13, two days before the proposed 15% tariff hikes kick in on US$160 billion worth of Chinese goods, the two economic powerhouses finally came to an agreement on phase one of the trade deal. An 86-page agreement is slated to be signed within the first week of January and negotiations on phase two of the trade deal will start immediately after. [Marketwatch

The ongoing tariff war had resulted in market turmoils for several months and greatly affected the way businesses operate. However, some reprieve is expected now that the US and China have taken steps to resolve the trade conflict. As the uncertain times have now found some certainty, businesses may find this an opportune time to expand their operations overseas. The following are some benefits businesses can get if they decide to go offshore during this period:

Reduced Import Costs

In the said agreement, the US will not proceed with the proposed 15% tariff hike on $160 billion worth of Chinese products and China has also cancelled its retaliatory tariffs. US will also reduce the tariff originally imposed on September 1 on $120 billion worth of Chinese goods. This means that corporations and SMEs who have or are planning to expand their operations offshore, particularly in China, do not need to worry about the rising import costs.

Increase in Domestic Consumption

China has agreed to increase purchases of US products and services, such as wheat, rice, corn, energy, pharmaceuticals by at least $200 billion and a further commitment to increase their agriculture purchases from US$24 billion in 2017 to US$40 billion a year for the next two years. A commitment to reduce non-tariff barriers on their agricultural products such as poultry, seafood and feed additives will allow trade to grow. As the consumption increases and population grows, businesses can expect to take advantage of the exponential growth of the economy that will follow.   

Better Intellectual Property Protection

China has committed to creating stronger legal protections for patents, trademarks and copyrights. This includes improving their criminal and civil procedures against infringement and counterfeit goods. In addition, the phase one trade deal contains commitments from China to remove any pressure from foreign companies to transfer their technology to Chinese firms. This is reassuring for companies that plan to relocate their operations as their ideas and innovation will be protected.

Easier Access to China’s Financial Services

With a large pool of consumers and improved purchasing power, China has become the world’s second largest wealth management market. It is no wonder that the country’s financial services sector caught the eye of global finance giants. Now that the phase one trade deal has been finalised, China made a commitment to open up its financial services sector to foreign companies. With an access to a large market like China, businesses who are looking to venture in its financial services sector will definitely find lucrative opportunities and growth.

DesFran’s Corporate Advisory Solutions

Now that the phase one trade deal is finalised, businesses from all over the globe can expect better opportunities should they plan to venture into an offshore market. However, it is still a long process for the trade conflict to be fully resolved, which may make foreign investments risky without the insights and advice of professionals.

At DesFran, our network of company formation professionals with over a decade of experience are armed with in-depth market and business insights. You know you will be making the informed decision for your business and investments in the foreign markets. If you want to venture and invest in an offshore company wisely, our experts are here for you. 

Contact us today.

References

U.S. outlines ‘Phase 1’ trade deal with China, suspends October tariff hike, Reuters.com

US-China trade talks are getting held up because of disagreements on a number of issues, CNBC.com

Big companies feel the sting of Trump’s trade war. But small businesses are in agony, Edition.cnn.com

A Closer Look at How the Trade War Impacts Small Business, Connecteam.com

How Trade Wars Affect Small Business, Businessblogshub.com

US-China Trade War: Would Trump Raise Tariffs Even Higher If No Is Deal Made, Ibtimes.com

Phase one trade deal may not get signed before additional tariffs kick in: US Chamber of Commerce, CNBC.com

Trump says it might be better to wait until after 2020 election for a China trade deal, CNBC.com

What’s in the U.S.-China ‘phase one’ trade deal, Reuters.com

US, China reach ‘Phase 1’ trade deal on Beijing promise of farm purchases, Business-standard.com

Latest China regulatory updates, EY.com

Here’s who wins and also loses in US-China trade war: Vietnam, .scmp.com

Trade and Trade Diversion Effects of United States Tariffs on China – United Nations Conference on Trade and Development,  unctad.org

About the Author 

Terence Tay is Strategic Communications and Research Executive at DesFran. Terence has more than six years of experience in the banking industry, with a keen interest in wealth and customer relations management. Having committed more than 15 years in the entertainment and performing arts scene in Singapore, Terence wishes to develop himself further in both the finance and communications realms by pursuing career and academic opportunities related to strategic and business communications. Terence holds a Bachelor’s degree in Management and Human Resource Management, and will be studying Master of Science in Communication Management at the Singapore Management University in 2020.

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