‘Phase One’ deal to boost business confidence, says Moody’s

The “Phase One” deal signed on Wednesday has reduced the risks of escalation in trade war between the United States and China.

Moody’s Investors Service managing director of credit strategy and standards, Michael Taylor, said the trade dispute between the world’s two largest economies had weighed on the global economy for nearly two years.

The agreement could boost bilateral exports by the two economies and lead to a rise in business confidence as well as investment, he said.

“But details of the agreement suggest that there remains considerable scope for friction between the two sides. Moody’s continues to expect tensions between China and the US to wax and wane in the years ahead.”

The centrepiece of the deal was a pledge by China to purchase at least an additional US$200 billion worth of US goods and services over two years, above a baseline of US$186 billion in purchases in 2017, said the White House.

It also provides protections for US technology and new enforcement mechanisms that allow Washington to quickly impose penalties, which Beijing cannot respond to.

But tariffs on hundreds of billions of dollars in goods remain in place on two-thirds of the more than US$500 billion in imports from China, leaving US consumers and businesses to foot the bill.

Reuters reported that key world stock indexes climbed to record highs after the deal was signed, but later stalled on concerns it may not ease trade tensions for long, with thorny issues still unresolved.

While acknowledging the need for further negotiations with China to solve other problems, US President Donald Trump hailed the agreement as a win for the US economy and his administration’s trade policies.

Chinese Vice-Premier Liu He read a letter from President Xi Jinping in which the Chinese leader praised the deal as a sign the two countries could resolve their differences with dialogue.