President Donald Trump and China finally agreed to a partial trade deal on Friday, putting the 21-month trade war between the world's two largest economies on pause -- for now.
Trump's White House rushed to characterise it as "amazing" and "historic." Top Chinese officials held a rare press conference to emphasise this deal was a win for them that meets the "growing needs of the Chinese people."
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Stocks hit record highs Thursday as Wall Street applauded on the news, but stocks were little changed Friday as details trickled out. Democratic leaders and many China hawks slammed Trump for caving too easily to China. Many business groups were cautiously optimistic.
The full text of the deal has not been made public, but Trump's team and Chinese officials confirmed that Trump agreed to scale back some tariffs in exchange for China buying about US$200 billion ($303b) more of US goods in the next two years and opening up to US financial firms.
Here's a rundown of the winners and losers:
• Trump, at least politically. He can say he made a deal, even if it's limited. It by no means fulfills all the objectives Trump set out to achieve in resetting the trade relationship with China. But he and his team are already spinning this as Trump keeping yet another campaign promise, even in the midst of Democrats trying to impeach him. News of the deal made the front pages of major newspapers and was mentioned on TV. He can trumpet the deal particularly to farmers and manufacturing workers hit hard by the trade war. The China deal (and the recently agreed US-Mexico-Canada trade deal) also make it likely the US economy will grow at 2 per cent or more next year, avoiding a recession and helping Trump's re-election chances.
• Farmers. China has committed to buying a record amount of US agricultural products next year, surpassing the prior record of about US$26b in 2012. US officials say China has agreed to buy US$32b of agricultural products, though Trump says China will probably "hit US$50b." The Chinese refuse to utter that exact figure, but they have agreed to bump up purchases and they know Trump wants headlines saying it's the "most ever" even if it's not quite US$50b. This will be a much needed injection of cash for farmers, who have been pounded by China's retaliatory tariffs despite a program Trump set up to compensate them for losses. Farm bankruptcies are up 24 per cent from last year and farm debt is at a record high, according to the US Farm Bureau. But farmers who voted for Trump before are likely to return to him again after this deal.
• Apple and other tech companies. Apple stock soared Friday, even as the overall market was flat. Tech companies like Apple are some of the biggest beneficiaries of this "phase one" deal because they will not be hit by tariffs. Trump had planned to put tariffs on December 15 on cell phones, laptops and other popular tech products made in China and shipped to the United States, but this deal scraps those plans entirely. This is a reminder that certain US companies have quietly managed to avoid most of the tariffs, even as others suffered.
• Walmart and other retailers. Trump scaled back (or cancelled) tariffs on the most popular items that Americans buy in stores, a massive relief for major US retailers like Walmart who were trying to figure out how to pass on the higher costs to consumers next year. The December 15 tariffs on toys and tech products aren't happening now, and the tariffs enacted in September on many clothing products (shoes, coats, etc.) were cut in half from 15 per cent to 7.5 per cent. Many retailers were able to keep prices down this holiday season because some shipments arrived before the tariffs went into effect, but it would have been much harder to avoid price hikes in 2020. Now that's not an issue.
• Wall Street investors. The S&P 500 index is on track for a total return of around 29 per cent this year. That would make this the best year for stocks since 2013 and one of the best years of all time. Stocks did fall sharply at the end of last year, but much of that pain has been forgotten after the rebound. Trump loves touting stock market highs (he did it again Friday after this deal sent stocks to a new record close on Thursday). About half of Americans have at least some money in the stock market.
• J.P. Morgan Chase and other US financial companies. One of the biggest breakthroughs in the deal is China finally allowing US banks and credit card companies to enter China on their own without having to partner with a local Chinese company. This has been on the wish list of big American banks for years. J.P. Morgan Chase already started the groundwork this summer to open in China in anticipation of this deal.
• Business leaders. Chief executives of just about every major US company have been urging Trump to strike a deal soon. On Thursday, shortly after Trump gave his final sign-off, he met with the heads of Cummins, Stanley Black & Decker and Union Pacific, who welcomed the deal. Trump frequently claims his tariffs are paid by China, but that's not true. US companies have been footing the bill (and sometimes passing costs on to consumers). And that bill so far has been US$88b, one of the largest tax increases in US history, according to the right-leaning Tax Foundation. This deal lowers that burden a bit and, importantly, signals Trump is unlikely to ramp up tariffs further in 2020.
• Chinese government. China didn't have to give too much here, and Chinese leaders played Trump skillfully at the end, refusing to confirm there was a deal for hours after the White House leaked there was one. China did agree to buy about US$200b more of US agriculture, energy and manufactured goods, but they were planning to do most of that anyway. They had even offered around that level of purchases in mid-2018. The biggest concession they made in this deal is to agree to penalties if they don't hold up their end of the bargain, but there is a long process the United States is supposed to go through before imposing punitive tariffs. In the meantime, Chinese leaders can say they got Trump to rollback some tariffs.
• Peter Navarro, Steve Bannon and China "hawks". This deal does little to fundamentally change China's ambitious "Made in China 2025" plans. Trump's had many trade advisers like Navarro urging him to keep the tariffs on and push China for a bigger deal that would include China committing to no longer subsidise key industries and steal US trade secrets. Instead, Trump scaled back tariffs and settled for a much less ambitious agreement. Trump promises there will be a "phase two" after the election, but many fear this will end up being a one-and-done deal.
• Trump's "MAGA" trade agenda. The China deal may be a win for Trump politically, but his goal of forcing China to overhaul its economic policies did not happen here. China remains a power player and its "Made in China 2025" plan is still moving ahead. China also did not agree to scale back any of its government subsidies for industries like steel. While the latest trade data shows a small reduction in the trade deficit with China, the US trade deficit with other nations (especially in southeast Asia) is growing.
• Bankrupt farmers. Some farmers didn't make it to see the gains from this deal after two brutal years for agriculture. In addition to a spike in farm bankruptcies, farmer suicides are on the rise and now exceed veteran suicide rates.
• Democrats. The "phase one" China deal is part of a string of positive news that is causing an upswing in markets and the economic outlook for 2020. A recession looks unlikely now. Trade was the biggest concern, economists said, and that's mostly off the table now. It's going to be harder to run against Trump. Senate Minority Leader Chuck Schumer, D-N.Y., tried to cast this deal as Trump "selling out" to China, but at his China policy, but it is going to be easier for Trump to swat away those attacks, especially if farm purchases set records.
• US companies still facing tariffs. Trump still has tariffs in place on about US$370b of Chinese imports. That includes hefty 25 per cent tariffs on many parts used in manufacturing, especially for autos. Those tariffs look like they are going to stay in place for a long time. Many small and mid-sized businesses have been hit the hardest since they have less ability to shift production to Thailand or Vietnam.
• Huawei. The Chinese tech giant has become the poster child of Trump's anger against China. The US government accuses Huawei of spying on the US government and US companies via Huawei phones and tech products. Trump heavily restricted Huawei's operations. The Chinese government tried to intervene numerous times, but Trump mostly held firm. Huawei told The Washington Post this week that the company may need two or three years to recover from Trump's actions. The phase one deal does not address Huawei's situation.
• China's economy. China was already facing a slowing economy before the trade war began. Trump's tariffs exacerbated the pain. While there is relief that Trump isn't going forward with tariffs on all Chinese products, as he had planned to do December 15, Trump has still kept in place tariffs on nearly US$370b worth of imports. Even more importantly, there is evidence that some companies shifted their supply chains out of China to other countries. That business, while modest as a share of China's total economy, is unlikely to return.
• Obama and George W. Bush. There will be debate for years about whether Trump's trade war was worth it and whether he achieved enough from the deal. But there's agreement that Trump changed the conversation about China. There was bipartisan support to go after China for unfair business practices, and Trump seized on that in a way that former Presidents Barack Obama and George W. Bush did not.