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January 16 2020

US-China trade deal: Winners and losers

International News

After more than two years of rising tension, the US and China have signed a deal aimed at calming trade frictions. The agreement has been hard-fought, but it is unclear how much economic relief from their trade war it will offer.

Tariffs – in some cases at a lower rate – will remain in place. Analysts say it’s unlikely that the deal will produce gains sufficient to outweigh the losses already suffered.

We take a look at the winners and losers from the deal.

Winner: Donald Trump

Some critics say there is little substance, but the signing offers an opportunity for US President Donald
Trump to put the trade war behind him and claim an achievement heading into the 2020 presidential election.

That may be a relief: Polls show that most Americans agree with the president that China trades unfairly, but they generally support free trade and oppose tariffs. Indeed, Republicans lost several congressional seats in 2018 – a change economists have linked to the trade war.
Winner: President Xi Jinping

China appears set to emerge from the signing having agreed to terms it offered early in the process, including loosening market access to US financial and car firms. In many cases, companies from other countries are already benefiting from the changes.

While President Xi can claim he did not simply bow to America’s demands, that doesn’t mean the Chinese are celebrating. The Federal Reserve estimates that China’s economy has taken a 0.25% hit, as US demand for its goods fell by about a third.

Loser: American companies and consumers

The new deal halves tariff rates on $120bn worth of goods, but most of the higher duties – which affect another $360bn of Chinese goods and more than $100bn worth of US exports – remain in place. And that’s bad news for the American public.

Economists have found that the costs – more than $40bn so far – are being borne entirely by US companies and consumers. And that figure does not even try to measure lost business due to retaliation.

Overall, the Congressional Budget Office estimates that tariff-related uncertainty and costs have shaved 0.3% off of US economic growth, while reducing household income by an average of $580 since 2018.

The CBO’s estimates take into account all new tariffs imposed since January 2018 – not just those involving China – but analysts say a more limited look would yield similar findings.

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