Phase One Trade Deal to Impact Asian and Middle Eastern Markets
Last updated on August 29th, 2020
After the revelation of the 86-page agreement of the Phase One Agreement of US-China Trade Deal, tensions about its possible impact on the rest of the world seem to be on a rise. Although it seems like the deal has cleared most matters that troubled the two countries, China’s use of cyber theft and its barriers against some technology investments of the US have not been taken care of.
As per the trade deal, China has claimed that it will not force the US companies for handing over technology in M&A. The country will ease intellectual property protections in ways that will make it easier for the US companies to reach out civil and criminal proceedings for theft of trade secrets.
With regard to food, the US farmers will be exporting more goods to China as latter will reduce some barriers on products like infant formula, beef, rice, pork, poultry and pet food. The trade deal has made it easy for US grain producers to obtain biotech related approvals for genetically modified crops.
Easing further risk of decoupling in capital markets, the US has permitted several Chinese financial service providers to get non-discriminatory regulatory treatment in the US. As a part of the trade deal, China has announced purchase of $200bn more in the US goods as compared to 2017 purchases.
The manufacturing purchases included in this range from aircrafts, cars, iron, steel to machinery and pharmaceuticals. Nearly $52.4bn have been planned for purchase of energy products (like crude oil, LNG) and $32bn will be used for purchases of farm goods (oilseeds, grains, meats, seafood).
The Phase One deal has announced cancellation of tariffs on China-made cell phones, laptop computers and toys. Tariff rate on other Chinese goods like flat-panel television, Bluetooth headphones and footwear has been halved to 7.5%.
Despite the settlement of most issues, the phase one trade deal does not seem to be very promising. As per the contract, the modifications in deal will come into effect 30 days after it is signed. It gives both the countries the right to drop the agreement within six days. Moreover, the deal specifies that purchase of US agricultural products by Chinese companies in the coming two years will depend on “market conditions”. Accordingly, the purchase timing will vary.
The news on the trade deal conjoined with the tumbling stock market indexes worldwide, showing a major hike. Oil prices have also shown significant rise.
As said by US President Trump, remaining tariffs would be removed after both countries discuss a “Phase 2” agreement. In a Fox Business Network interview, Vice President Mike Pence said, “We’ve already begun discussions on a Phase 2 deal.”
The trade deal has laid major impacts on the Middle East and East Africa, as China is the largest trading partner in most countries of these regions. The global economic growth slowdown has reduced trade for the oil dependent economies. Following the Phase One trade deal that promises stronger intellectual property protection, cross border investment flows are expected to improve in the Middle East.
An improvement in China’s foreign direct investment will boost commodity prices, ensure better regional trade and aid capital flows in the Middle East. Moreover, the trade deal could benefit GCC producers like Saudi Arabia, Kuwait and the UAE. Analysts estimate that the Dubai Financial Markets, Saudi Arabia’s Tadawul and Abu Securities Exchange will benefit from the deal. Oil companies, like Saudi Aramco will also benefit from the trade deal as the country plans to reduce its dependence on oil.
Reports of Asian markets have already shown major shift just after the announcement of the Phase one agreement. The actual impact on the Middle East is yet to be seen.
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