The U.S.-China trade deal is a step toward trade peace, but there's still a long way to go - Action News
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The U.S.-China trade deal is a step toward trade peace, but there's still a long way to go

The U.S. and China have agreed on a Phase 1 trade deal to avoid the implementation of potentially painful new tariffs. But the core of the dispute remains unresolved, Peter Armstrong writes.

The progress is encouraging, but what's perhaps more significant is what's not in the deal

U.S. President Donald Trump heralds the Phase 1 agreement as a breakthrough. Some analysts aren't so sure. (Spencer Platt/Getty Images)

A so-called Phase 1 trade deal between the U.S. and China ensures the dispute between the two countries won't escalate atleast for now.

While the agreement addresses some of their outstanding issues specifically China agreeing to buy more American agricultural products what's perhaps even more significant are the thorny issuesthat remain unresolved.

Some analysts warn thatany celebrations declaring it a"historic breakthrough"may be premature.

Stock markets have jumped every time such progress has been rumoured and it's been rumoured off and on for months now.

"It never ceases to amaze me how investors can continue to react to the same piece of news," David Rosenberg, chief economist at GluskinSheff wealth management in Toronto, said in a note to clients.

Many of the details of the partial deal haven't been released, but here's a look at what we know so far.

What is in the deal

The global economy has been held back as the dispute between the U.S. and China has ebbed and flowed since 2018. Any step away from the brink is good for everyone.

Many were worried about the impact of the next round of tariffs, whichwould have hit American consumers just ahead of Christmas.

The now-cancelled tariffs would have targeted Chinese-made goods includingsmartphones, clothing and toys.

The U.S.-China deal reduces some tariffs on goods. In exchange, China has agreed to buy more U.S. agricultural products. (Mario Tama/Getty Images)

Sal Guatieri, senior economist at BMO, says the partial deal means those new tariffs are off the table.

But more surprising, he says, the agreement will cut existing tariffs on $360 billion in Chinese imports. It willroll back the tariff rate imposed in September on items ranging from televisions tobed linens.

"The rollbacks, if realized,could revive business sentiment and add a couple of tenths to U.S. GDP growth next year," Guatieri said in a note to clients. "At the very least, the de-escalation intradetensions, if sustained, would shift the economic risks to the upside."

In return for the elimination of tariffs,China has promised to buy large quantities of U.S. soybeans, poultry and other agricultural products.

A round of now-cancelled tariffs were set to kick in this weekend and would have hit U.S. shoppers right before Christmas. (Katherine Holland/CBC)

U.S. President Donald Trumpsays the Chinese have agreed to buy $50 billionworth.

"And I say, affectionately, the farmers are going to have to go out and buy much larger tractors, because it means a lot of business, a tremendous amount of business," Trump told reporters.

What's not in the deal

Markets went up Friday on the news of theagreement. But they did the same thing last week and last month when negotiators said a deal was coming.

Rosenberg isn't sure investors fully understand just how limitedthis agreement is.

The core of the U.S.-China dispute is over what the Americans consider unfair subsidies for Chinese industries and the need for stiffer protections forintellectual property and against currency manipulation.

The Phase 1 deal addresses none of those issues.

In a note to clients, Rosenberg says Phase 1 deals with a "tiny portion of issues," while the much more important ones, such as subsidies and technology transfers, "have been left for another date."

That skepticism didn't keepTrump from hailing the agreement as a"phenomenal deal."

"This is a very large deal," hetold reporters at the White House. "The China deal. It covers tremendous manufacturing, farming, a lot of rules, regulations, a lot of things are covered. It's a Phase 1deal, but a lot of big things are covered."

But even Trump admits some of the biggest blocks of tariffsremain in place.

"The tariffs will largely remain at 25 per cent on $250 billion," hesaid. "And we'll use them for future negotiations on the Phase 2 deal, because China would like to see the tariffs off."

The upside for global trade tensions

The partial deal isTrump'ssecond trade victory of the week.On Tuesday, Canadian, American and Mexican negotiators finally agreed to a revised deal to replace NAFTA.

And in the U.K. election this week, theConservatives secured a majority government, which should dramatically reduce the chances of a no-deal Brexit.

The possibility of Britain leaving the E.U. without a formal divorce agreementhas raised serious concerns and uncertainty about how trade mightbe affected in Europe.

No one knows exactly how the U.K.'s departure from the EUwill proceed, but with the election result, at least some of the uncertainty seems to have beenremoved.

For the first time in a long time, the news about global trade isn't a total disaster. And that has some analysts optimistic heading into 2020.

While she shares many of the concerns about the bigger issues between the U.S. and Chinathat need addressing,Frances Donald, chief economist at Manulife Asset Management in Toronto, says the Phase 1 deal shows that both sides are willing to make a deal and get this dispute behind them.

"Canadians can breathe a sigh of relief," Donald said. "Global growthlooks as though it now has upside potential and the worst geopolitical tensions are behind us."

And that, she says, is good news for everyone.

"It not only helps our trade sector and our manufacturingsector, but it will support markets that will translate into better equity returnsfor Canadians as well."