What does new US-China trade deal mean?
Recently, President Trump signed “phase one” of the US-China trade deal. To put it lightly, the deal is a step toward de-escalation. Up until now, an increasingly volatile relationship between the two countries has induced a volatile trade market, affecting everything from steel market prices to farmed goods from U.S. farmers.
So what does this "phase one" trade deal actually mean for the US steel market?
Under the first half of the agreement, the U.S. agreed to cancel new tariffs on China that were set to take effect earlier this year. The White House will leave 25 percent duties on $250 billion in Chinese goods in place, and cut existing tariffs on another $120 billion in products to 7.5 percent.
“It’s got great stuff in it,” White House adviser Peter Navarro told CSNBC. “It’s got essentially the same chapter we had in the May deal that the Chinese walked away from on intellectual property theft. So that’s a good deal.”
As part of a boost to the US market, the “phase one” deal comes with an agreement from China to purchase an additional $200 billion in US goods over the next two years. The composition of that additional $200 billion is as follows:
- Manufactured goods: $32.9 billion in 2020, $44.8 billion in 2021
- Even a small increase in scrap exports from the US to China could push domestic scrap pricing higher.
- Agriculture goods: $12.5 billion in 2020, $19.5 billion in 2021
- Energy goods: $18.5 billion in 2020, $33.9 billion in 2021
- Services: $12.8 billion in 2020, $25.1 billion in 2021
Below is a deeper dive into each majority industry. This includes, but is not limited to the following:
While I am very interested in whose blood is getting shipped across the Pacific, I am more interested in what is included in iron and steel products. This may include scrap, which has gone from 3-4 million tons annually last decade, to virtually 0 tons in 2019.
Even a small increase in scrap exports from the US to China could push domestic scrap pricing higher.
In another step towards de-escalation, China recently cut tariffs on $75 billion worth of US goods, affecting US goods that China imposed tariffs on last September. As the relationship continues to improve and "phase one" of the trade agreement runs its course, the market will decide if the trade war is really over.