Audience Cheers As Trump Signs 'Phase 1' China Trade Pact

Update 3: The trade deal has been signed, and the text released.

Bloomberg's crack team of headline writers is digesting the document as quickly as they can, and sending headlines about the details:

  • DEAL SAYS CHINA, U.S. TO AGREE ON TIMING OF MORE NEGOTIATIONS
  • U.S., CHINA TRADE DEAL COVERS CURRENCY, INTELLECTUAL PROPERTY
  • U.S., CHINA AGREE TO REFRAIN FROM COMPETITIVE FX DEVALUATION
  • U.S., CHINA AGREE TO RESPECT ONE ANOTHER'S MON. POLICY AUTONOMY
  • CHINA TO ALLOW U.S. INVESTORS TO BUY NON-PERFORMING LOANS
  • U.S., CHINA FX ISSUES TO BE REFERRED TO BILATERAL ARRANGEMENT
  • U.S., CHINA TO COMMUNICATE REGULARLY AND CONSULT ON FX MARKETS
  • CHINA TO BUY $32B ADD'L U.S. AGRICULTURE PRODUCTS OVER 2020-21
  • CHINA TO BUY $52.4B ADD'L U.S. ENERGY PRODUCTS OVER 2020-21
  • CHINA `WILL STRIVE' TO BUY EXTRA $5B PER YR IN U.S. AGRICULTURE
  • CHINA TO BUY ADD'L $18.5B U.S. ENERGY PRODUCTS IN 2020
  • CHINA TO BUY MORE U.S. NUCLEAR POWER EQUIPMENT IN TRADE DEAL
  • CHINA ENERGY PURCHASES TO INCLUDE LNG, OIL, PRODUCTS, COAL

And here a few key excerpts:

Intellectual Property

The U.S. recognizes the importance of intellectual property protection. China recognizes the importance of establishing and implementing a comprehensive legal system of intellectual property protection and enforcement as it transforms from a major intellectual property consumer to a major intellectual property producer. China believes that enhancing intellectual property protection and enforcement is in the interest of building an innovative country, growing innovation-driven enterprises, and promoting high quality economic growth.

Chinese Purchases

During the two-year period from January 1, 2020 through December 31, 2021, China shall ensure that purchases and imports into China from the U.S. of the manufactured goods, agricultural goods, energy products, and services identified in Annex 6.1 exceed the corresponding 2017 baseline amount by no less than $200 billion.

Tech Transfer

The Parties affirm the importance of ensuring that the transfer of technology occurs on voluntary, market-based terms and recognize that forced technology transfer is a significant concern. The Parties further recognize the importance of undertaking steps to address these issues, in light of the profound impact of technology and technological change on the world economy.

Enforcement Mechanism

  • 1. Issues related to exchange rate policy or transparency shall be referred by either the U.S. Secretary of the Treasury or the Governor of the People’s Bank of China to the Bilateral Evaluation and Dispute Resolution Arrangement established in Chapter 7 (Bilateral Evaluation and Dispute Resolution).
  • 2. If there is failure to arrive at a mutually satisfactory resolution under the Bilateral Evaluation and Dispute Resolution Arrangement, the U.S. Secretary of the Treasury or the Governor of the People’s Bank of China may also request that the IMF, consistent with its mandate: (a) undertake rigorous surveillance of the macroeconomic and exchange rate policies and data transparency and reporting policies of the requested Party; or (b) initiate formal consultations and provide input, as appropriate.

As for China's commitments to purchase $200 billion in American goods and services, Bloomberg has already published a breakdown:

* * *

Update 2: Vice Premier Liu He began his speech by reading a letter from President Xi to President Trump.

  • CHINA'S XI TELLS TRUMP IN LETTER HOPES U.S. TREATS CHINESE COMPANIES FAIRLY -CHINA VICE PREMIER LIU
  • LIU: NEXT STEP IS U.S., CHINA IMPLEMENT DEAL IN `REAL EARNEST'
  • LIU CALLS PHASE-ONE DEAL 'MUTUALLY BENEFICIAL AGREEMENT'
  • CHINA VICE PREMIER LIU SAYS CHINESE FIRMS WILL BUY AMERICAN PRODUCTS BASED ON MARKET CONDITIONS - [RTRS]
  • LIU SAYS CHINA WILL STRICTLY HONOR PHASE-ONE TRADE DEAL

As Liu spoke, the market lost some of its momentum, heading lower.

Is this the start of trade-deal 'sell the news'?

* * *

Update: When you're president, your thank-you speech can be as long as you want, and nobody will try to shuffle you off-stage by queuing the music. 

President Trump started his speech by praising the landmark agreement, and highlighting the market's gangbuster performance since his inauguration (more than 140 stock market ATHs, baby).

Then, in typical Trump fashion, he launched into a winding monologue praising Larry Kudlow (for all the times he helped jawbone the market back into the green) and US ambassador to China Terry Branstad (about whom Trump told a story involving the ambassador's first meeting with President Xi, more than 30 years ago, when he was still a young man). He went on to praise members of the White House staff, and several members of his cabinet - Wilbur Ross, Sonny Perdue and Elaine Chao were each singled out for praise.

At one point, Trump addressed lawmakers in the room, offering members of the House the chance to go vote in Nancy Pelosi's "impeachment hoax", which she announced earlier.

Even Lou Dobbs came in for some praise: Trump praised Dobbs for favorably comparing him to Reagan.

Blackstone CEO Steve Schwarzman, former AIG boss Hank Greenberg, and Henry Kissinger also received shout outs from the president.

Senators Kevin Cramer, Kevin Crapo, Steve Daines, Joni Earnst, Lindsey Graham and several others also got shouted out.

He's still going, as the market gradually ticks higher.

Trump even shouted out JPM, praising the company for yesterday's blockbuster earnings report and joking that he deserves "a little credit" for the bank's performance.

Even Ken Griffin got a shoutout.

In one of the speech's funnier moments, Trump joked about one business executive's habit of seeking autographs from Trump, only to turn around and sell the memorabilia on eBay.

When Trump got to Kevin Warsh, he joked that Warsh should have been "more forceful" when he was interviewing for "that job". Trump added that he would have been "very happy" with Warsh in the unnamed position. Though Trump didn't stipulate exactly which job he was talking about, the implications are clear: Looking back, Trump wishes he picked Warsh over Jay Powell.

Before he finished talking, Trump said that the US would keep the tariffs in place for now to achieve more leverage during further talks. Trump added that as soon as the Phase 1 deal 'kicks in', his administration would be starting negotiations for Phase 2.

* * *

As US stocks swing between slight gains and losses, investors are waiting with baited breath for President Trump and Chinese Vice Premier Liu He to sign the 'Phase 1' trade deal, the first sign of comity in what has been an acrimonious two-year trade battle between the world's two largest economies.

Earlier, we delved into the details of the agreement, the text of which is expected to be released on Wednesday. The basic takeaway is this: While it should narrow the US trade deficit with China, the agreement does nothing to curb China's illegal state subsidies and rampant cyber theft, some of the biggest concerns of China hawks.

The US will scale back some tariffs, but the trade war tariffs will remain in place until after the election, a mechanism to help ensure Chinese compliance with the trade deal.

While markets remain largely optimistic, China's Global Times posted an editorial earlier complaining about the deal, and claiming that the negotiations for 'Phase 2' might not start for a while.

But in the short term, the deal should boost US exports to China by $200 billion over two years, which will help reverse the trade war-inspired drop.

Infographic: A Longterm View On U.S. Trade With China | Statista You will find more infographics at Statista

But as the two sides gear up for the next round of negotiations, will the trade detente last? That, of course, remains to be seen.