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US, China prepare to sign initial accord tomorrow to ease trade war


AS the US and China prepare to sign a first-stage trade accord tomorrow economic indicators show that the US economy remains largely unscathed by the two years of trade war with China, though it might take years to see the full impact.

However during the past two year, US farmers took a big hit while importers of auto parts, furniture and machinery choked down punishing tariffs. Investment between the world's two largest economies dropped, the Wall Street Journal reported.

US economic growth is trending near 2 per cent in 2019, well short of the Trump administration's goal of 3 per cent.

The first-stage trade accord on Wednesday is aimed at easing trade tensions and making the tariffs worth it, in the administration's view. The deal "protects American innovation and creates a level playing field for our great farmers, ranchers, manufacturers, and entrepreneurs," said Judd Deere, a White House spokesman, adding, "President Trump protected the American worker and fundamentally changed our relationship with China."

At the same time, most Chinese imports are still subject to US tariffs, and many trade issues remain the subject of sharp disagreement.

"China is set to do little more than restore agricultural purchases and offer some nice words on financial services and intellectual property," said Benn Steil, the director of international economics at the Council on Foreign Relations. "Trump could have had that two years ago without the tariff damage."

Economists have also warned it could take years for the full consequences to be realised.

"People are wanting to wrap this up in a bow and draw lessons and put this behind us, but I really think it's way too premature," said Chad Bown, senior fellow at the Peterson Institute for International Economics, a nonpartisan policy outfit.

American farmers took the brunt of the damage, as China largely halted purchases of major US exports like soybeans. Annual US farm exports to China plunged from nearly US$25 billion in recent years to below $7 billion at its low point in the 12 months through April 2019.

Farm debt levels last year reached new records, as delinquencies and bankruptcies rose. Bad weather conditions also took a toll. The damage was tempered to a degree by the US government responding with $28 billion in aid to farmers. The USDA estimated its aid payments will make up one-third of US farm income in 2019. Any fallout for the broader US economy is also limited because few Americans - only about 1 per cent - make their living on farms.

Farmers also fretted that trading relations with China they worked hard to secure might never recover. Agricultural purchases are now set to resume under the phase-one trade deal, with a goal of reaching $40 billion to $50 billion a year.

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