Reducing the exchange deficit
Last Friday May 12, Beijing and Washington revealed a trade agreement as part of a 100-day plan agreed to by Presidents Xi Jinping and Donald Trump during their meeting in April.
This agreement brings to fruition one of President Trump’s campaign promises to reduce the growing trade deficit between the US and China. Last year, the gap related to goods and services traded with China reached $310 billion, which is equal to 60 percent of the country’s total deficit last year (US $500.6 billion)
In a January 29 research project, Daxue Consulting reported that after a banishment of 13 years, the Chinese government is giving up on the restriction of American beef in China. The new Sino-American trade agreement will allow, amongst other things, for an easier entry of American beef into China in order to address its growing consumption in the country.
Beijing also agreed to allow US companies to ship natural gas to China as well as a “full and prompt market access” for electronic payment services. This means that foreign companies will soon be allowed to provide credit ratings in China-starting next July. In exchange, Washington will allow cooked Chinese poultry to be sold in the country.
Both countries’ expectation, stemming from this 100-day plan, is to continue to strengthen the relationship and cooperation between China and the US into next year and beyond.
“Herculean accomplishment” or “Narrow deal”?
Even as the US government considers this Sino-American trade agreement “a herculean accomplishment”, according to Capital Economics, experts are “circumspect” regarding the efficiency of this deal. Indeed, analysts forecast this agreement is far from being enough to fill up the gap in trade exchanges between the worlds’ first and the second-largest economies. To quote CNN Money, “It’s quite a narrow deal” that is “not going to have a meaningful impact on the trade deficit that the U.S. has with China.”
Nonetheless, this agreement could have long-term potential, mainly due to the financial services portion of the deal, which would allow the entrance of American payment providers into China and conversely allow Chinese banks to reach the US banking market.
Photo source: Baidu