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US-China phase one trade agreement signed in Washington

By Charlotte Ricca

Hopes trade agreement will ease tensions between the two countries, although US tariffs on China will remain in place until full deal agreed

US China phase one trade agreement signed in Washington

After more than 18 months of deliberation, cogitation and down-right aggravation, president Donald Trump and vice premier Liu He have signed phase one of the US-China trade agreement at a ceremony in Washington.

It is hoped the deal will ease the trade conflict between the two nations, which has seen global trade suffer and economies weaken as a result. However, things are already off to a shaky start.

The White House has already announced that the existing tariffs will remain in place until a full trade deal is agreed, costing China billions of dollars. It is unlikely a comprehensive trade deal will be resolved before November’s presidential election.

Treasury secretary Stephen Mnuchin told reporters: “These tariffs will stay in place until there is a phase 2. If the president gets a phase 2 in place quickly, he’ll consider releasing tariffs as part of phase 2.”

Beijing has agreed to buy up to $50bn (€44bn, £38bn) of US agricultural products per year, however investors fear that, in light of this latest revelation, China might not stick to the deal.

Ipek Ozkardeskaya, senior analyst at Swissquote said in the Guardian: ”This means that the US tariffs will continue weighing on Chinese exports for almost an additional year, while the emerging market giant will certainly be asked to deliver on its promise to buy massive amounts of US farm goods and manufactured products immediately.

“The risk here is that the double-standard agreement could provide a weak basis for the future negotiations, impair the benefits, or even spoil the deal.”

Other big issues, such as intellectual property protection and subsidies, have been also deferred until a phase two deal.

Meanwhile both China and US banks have added liquidity to their respective banking systems.

China's central bank added added 300 billion yuan ($44 billion) through its medium-term lending facility at 3.25 per cent, to avoid a cash crisis in the run-up to the Lunar New Year. This followed the $115bn it freed up in liquidity at the beginning of the year.

In addition, the bank injected 100 billion yuan via open market operations after a 15-day hiatus, selling 14-day reverse repurchase agreements at 2.65 per cent.

FURTHER READING: China says factory activity grew in December

The Federal Reserve Bank of New York added $82bn in temporary liquidity to the financial system. Eligible banks drew $47bn in overnight liquidity from the central bank, less than the $120 billion the Fed was willing to provide. But the 14-day repo saw banks offer the Fed $43.2bn in securities, against the Fed’s $35 billion cap.

FURTHER READING: China pulls plug on Shanghai and London cross-border listings

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