China: ‘Phase one’ deal reduces tariff drag in 2020 – Standard Chartered

Analysts at Standard Chartered note that on 13 December, the US and China announced a phase one trade deal and cancelled the proposed tariff hikes on 15 December.

Key Quotes

“The phase one deal contains nine chapters on the subjects of intellectual property, technology transfer, agriculture, financial services, currency, and expanding trade and dispute resolution, according to a statement from the US Trade Representative office.”

“On signing the deal (likely in January 2020 after going through final legal procedures), the US will maintain 25% tariffs on USD 250bn of China imports, and 7.5% tariffs (down from 15%) on USD 120bn of goods. China officials said the deal will better protect foreign companies’ interests in China, and the US is expected to roll back existing tariffs in phases.”

“The US also scrapped plans to impose a 15% tariff on USD 156bn of products from China on List 4B from 15 December. In return, China suspended retaliatory tariffs of 5‑10% on a subset of USD 75bn of US products and delayed the re-imposition of 5‑25% tariffs on US autos and auto parts on 15 December.”

“Receding global headwinds support our 6.1% growth forecast for China in 2020, which is above the market consensus of 5.9%.”

“We estimate the cancellation of the proposed US tariff hike on 15 December averts a 0.2ppt reduction in China’s GDP growth in 2020. Existing US tariffs of 25% on imports from China on List 1, 2, 3 and 15% on List 4A are expected to shave c.0.3ppt from China’s growth in 2020. However, if the US lowers List 4A tariffs to 7.5% from 15% on signing the phase one deal in January,  this will reduce the tariff drag on China’s economy to 0.2ppt in 2020.”