China and the US have finally come to an agreement on steps to bring an end to the devastating trade war which has engulfed the current account of both countries, whilst also significantly rocking the global economy.
Under the agreement, China has agreed to purchase an additional $200 billion worth of American-made goods and services in the next two years. The majority of these goods will come from the US agricultural sector, including products like soybeans, pork, wheat, and cotton. The soybean and pork industry will be particularly relieved as they were hit hard by the tariffs China introduced in the summer of 2018. Both industries suffered significantly, resulting in the closure of many businesses and unemployment.
Going the other way, because of course the US must offer something in return, is the reduction of tariffs on $120 billion worth of Chinese imports from 15% to 7.5%. Whilst this will benefit Chinese producers, who can pass this on in the form of lower prices for American consumers, the remaining tariffs still highlight the protectionist stance of the Trump administration. Who knows when Phase Two will be signed, but at the very least this is a step in the right direction towards easing tension throughout the global economic system.
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term current account?
Q2. Explain why the trade war has impacted the Chinese and American current accounts.
Q3. Analyse the impact the Phase One trade deal is likely to have on the soybean industry in the USA.
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