Tag Archives: Economy

Trump says U.S. may give farmers more money until trade deals ‘kick in’

Trump: U.S. may give farmers more aid until trade deals ‘kick in’
WASHINGTON (Reuters) – The United States may give American farmers additional money until trade deals with China, Mexico, Canada and other countries fully go into effect, President Donald Trump said on Friday.

“If our formally targeted farmers need additional aid until such time as the trade deals with China, Mexico, Canada and others fully kick in, that aid will be provided by the federal government,” Trump wrote in a Twitter post entirely in capital letters.

It was not immediately clear how large the aid package would be or how long it would last.

The Trump administration set aside a $16 billion aid package to farmers in 2019, and $12 billion a year earlier. In January, Agriculture Secretary Sonny Perdue said farmers should not expect another bailout package in 2020.

Trump is seeking re-election in the Nov. 3 presidential election. Farmers form a key part of his electoral base, but they have been badly bruised by low commodity prices and Trump’s tit-for-tat tariff dispute with China.

The White House declined to comment. The Department of Agriculture and the U.S. Trade Representative’s office did not immediately respond to requests for comment.

Last month, Trump signed a trade deal with Canada and Mexico into law, along with a separate Phase 1 accord with China that went into effect in mid-February.

Canada has not yet ratified the deal and experts had been skeptical that China, which had pledged to increase its purchases of U.S. goods by $200 billion over two years, would be able to meet the goal even before a coronavirus outbreak hit the country’s imports and exports.

(Reporting by Makini Brice; editing by Susan Heavey and Bernadette Baum)

Fed policymakers cautiously optimistic on U.S. economy despite new risks, minutes show

By Lindsay Dunsmuir

WASHINGTON (Reuters) – Federal Reserve policymakers were cautiously optimistic about their ability to hold interest rates steady this year, minutes of the central bank’s last policy meeting showed, even as they acknowledged new risks caused by the coronavirus outbreak.

The readout on Wednesday of the policy discussion, at which policymakers unanimously voted to keep interest rates unchanged in a target range of between 1.50% and 1.75%, also showed Fed officials were skeptical about any big rethink of the central bank’s inflation target.

“Participants generally saw the distribution of risks to the outlook for economic activity as somewhat more favorable than at the previous meeting,” the Fed said in the minutes of the Jan. 28-29 meeting. It went on to say the current stance of monetary policy was likely to remain appropriate “for a time.”

Coming into this year the Fed had made clear that, after three interest rate cuts in 2019, it plans to hold interest rates steady, barring a significant change in the U.S. economic outlook.

Policymakers have pointed to U.S. consumer spending levels, dissipating U.S-China trade tensions and loose financial conditions as supporting their view, but how long such an upbeat assessment can last has already been tested by escalating concern about the global economic impact of the coronavirus outbreak that started in China.

On Monday Apple Inc <AAPL.O> issued a revenue warning due to the disruption the epidemic is causing to its supply chain. China, the world’s second-largest economy, is still struggling to get its manufacturing sector back up and running after imposing severe travel restrictions to contain the flu-like virus.

Fed Chair Jerome Powell said last week it was too early to tell if the knock-on economic impact on the United States would be severe or sustained enough to cause the Fed to change its current path.

Since the outbreak began investors have brought forward their bets of when the Fed will cut interest rates again, to around June of this year. In the minutes, policymakers said the threat “warranted close watching.”

Despite that, Fed officials offered a fairly upbeat assessment of the economy, expecting consumer spending to “likely remain on a firm footing,” job gains to expand at a healthy pace, continued moderate economic expansion and inflation returning to its 2% goal. The Fed is forecasting the economy growing 2.0% this year.

That is at odds with some economic data released since the meeting. The Commerce Department reported last week a slowdown in consumer spending in January. Business investment has also experienced a deepening downturn and the U.S. manufacturing sector remains weak.

As part of a discussion on rethinking the Fed’s inflation goal during the central bank’s review of its main policy tools, there were vocal doubts about adopting an inflation range.

“Most participants expressed concern that introducing a symmetric inflation range … could be misperceived as a signal that the Committee was comfortable with continued misses below its symmetric inflation objective,” the Fed said.

BALANCE SHEET

Elsewhere in the minutes, Fed policymakers discussed how to handle its growing balance sheet. The Fed has been buying $60 billion monthly of U.S. Treasury bills since October to increase the level of reserves in the banking system in response to a liquidity crunch.

Powell has said the Fed would aim to begin scaling back that amount sometime in the April-June period, when the level of reserves in the banking system would likely be deemed adequate.

After that, “regular open market operations would be required over time in order to accommodate trend growth in the Federal Reserve’s liabilities and maintain an ample supply of reserves,” Fed policymakers noted in the minutes.

The Fed also expects to continue offering support in the market for repurchase agreements, or repo, at least through April but in the minutes staff floated a plan that included phasing out the term repo operations after April. Those policymakers who commented on the plan were comfortable with the idea, according to the minutes.

Several policymakers asked for more discussion “before long” on the possibility of creating a standing repo facility, which would allow banks to borrow cash as needed at a fixed rate.

(Reporting by Lindsay Dunsmuir in Washington; Additional reporting by Jonnelle Marte in New York; Editing by Andrea Ricci and Matthew Lewis)

Coronavirus poses risks to fragile recovery in global economy: IMF

By Andrea Shalal

WASHINGTON (Reuters) – The coronavirus epidemic has already disrupted economic growth in China and a further spread to other countries could derail a “highly fragile” projected recovery in the global economy in 2020, the International Monetary Fund warned on Wednesday.

In a note prepared for G20 finance ministers and central bankers, the global lender mapped out a plethora of risks facing the global economy, including the fast-spreading coronavirus and a renewed spike in U.S.-China trade tensions, as well as climate-related natural disasters.

Finance ministers and central bankers from the top 20 advanced industrialized economies will gather in Riyadh, Saudi Arabia, later this week amid continued uncertainty about the impact of the coronavirus, known as COVID-19.

The IMF said it was sticking to its January forecast for 3.3% growth in the global economy this year, up from 2.9% in 2019, already a downward revision of 0.1 percentage points from its forecast in October.

But it said the recovery would be shallow and risks remained skewed to the downside. “The recovery could be derailed by a sharp rise in risk premia, triggered for example by a re-escalation of trade tensions, or a further spread of the coronavirus,” the Fund said.

Chinese state television quoted President Xi Jinping as saying China could still meet its economic growth target for 2020 despite the epidemic. But the IMF note cast doubt on that.

“The coronavirus, a human tragedy, is disrupting economic activity in China as production has been halted and mobility around affected regions limited,” the Fund wrote in the note. “Spillovers to other countries are likely — for example through tourism, supply chain linkages, and commodity price effects.

It said the impact of the virus was still unfolding, and while the current scenario assumed a quick containment of the virus and a bounce-back later in the year, the impact of the epidemic could be larger and longer-lasting.

“A wider and more protracted outbreak or lingering uncertainty about contagion could intensify supply chain disruptions and depress confidence more persistently, making the global impact more severe,” the Fund said in the note.

Cyber attacks, an escalation of geopolitical tensions in the Middle East or a breakdown in trade negotiations between China and the United States could also impede the short-term global recovery, it said. And climate-related disasters, rising protectionism and social and political unrest triggered by persistent inequality posed further economic risks.

The Fund urged policymakers to maintain fiscal and monetary policy support. Low inflation required monetary policy to stay accommodative in most economies, it said.

(Reporting by Andrea Shalal; Editing by Tom Brown)

China approves imports of live poultry from U.S.

By Dominique Patton

BEIJING (Reuters) – China has approved the import of all poultry products from the United States, the Ministry of Agriculture and Rural Affairs said on its website on Monday, including breeding birds in addition to poultry meat approved late last year.

Beijing had banned all trade in poultry products from the United States since 2015 due to outbreaks of avian influenza there.

But it lifted the ban on poultry meat imports in November 2019 as a concession to the United States ahead of finalizing a limited trade deal.

The new announcement would also allow for the import of live birds, said Li Jinghui of the China Poultry Association, benefiting companies including Aviagen and Cobb-Vantress Inc, both based in the United States and among the world’s biggest poultry breeding companies.

Nobody at the China offices of Aviagen or Cobb could immediately be reached by phone.

Imports of live poultry from the U.S. were worth $38.7 million in 2013, dwarfed by other poultry products such as chicken feet.

However, the U.S. ban had a significant impact on China’s poultry producers, who needed the breeders to replenish their stock.

Opening up imports of live birds again is part of the trade deal, said Li, although he added that it may not have a major impact.

Both Aviagen and Cobb have increased production of their birds, known as ‘grandparent stock’, in other locations such as New Zealand to meet demand from China.

Two of China’s leading poultry firms, Shandong Yisheng Livestock and Poultry Breeding Co Ltd and Fujian Sunner Development Co Ltd., have also begun their own breeding programs to reduce their reliance on imports.

China is the world’s second-largest poultry producer and has been ramping up output to fill a huge meat shortage after a disease epidemic decimated its pig herd.

But prices have plunged in recent weeks because of measures taken by Beijing to tackle a coronavirus outbreak that has killed more than 1,700 people.

Restrictions on moving livestock and extended holidays in many areas have paralyzed the supply chain, leaving farmers stuck with large inventories of birds and eggs and slashing demand as restaurants and canteens stay shut.

Containers of frozen chicken feet from the U.S. have also been caught up in the logistics logjam, with many diverted away from China because of a lack of capacity to store additional cargoes.

(Reporting by Dominique Patton; Editing by Kim Coghill and Christian Schmollinger)

 

The truth about ‘greedy’ seniors and the ‘war’ between generations

By Mark Miller

CHICAGO (Reuters) – Former U.S. senator Alan Simpson summarized the argument well: seniors fighting Social Security benefit cuts were nothing more than “greedy geezers” stealing from young people “who are going to get gutted.” The Wyoming Republican’s memorable phrase from 2012 is a good example of the colorful language of so-called intergenerational warfare – pitting generations against one another with zero-sum-game economic arguments.

That kind of rhetoric might be useful for some politicians, but it is economic nonsense. Families do not live in economic silos, separated from one another, and some recent evidence shows that a large segment of the senior population is anything but greedy. In fact, they are struggling to meet basic living expenses – and the economic pain also affects younger family members.

Consider the results of a recent survey by AARP.  It found that one-third of midlife adults with at least one living parent (32%) are providing financial support to them, usually for living expenses such as groceries and medical costs. More than half of midlife adults (54%) provided $1,000 or more to their parents in the last year; within that group, 34% provided help ranging as high as $5,000, and 13% provided help as high as $10,000.

“I think some people have an image of the older generation living high on the hog, draining America’s coffers by spending their Social Security on cruises to the Bahamas,” said George Mannes, senior editor of the AARP magazine. “But a lot of older people are really living close to the bone.”

The AARP survey results are disturbing – but really only hint at the number of older households coping with financial stress.

A more detailed measure is the Elder Index, produced by the Gerontology Institute at the University of Massachusetts Boston. The index measures the cost of living for older people living as couples or alone – but independent of children. It is built around the typical budgets of seniors.

“It’s very stripped down – it doesn’t include anything anyone would remotely consider unnecessary,” said Jan Mutchler, a professor of gerontology at the university. That means expenses like food, housing and utilities and minimal levels of transportation – and of course, healthcare costs.

The index is calculated for every county in the United States, which means it takes into account regional variances in the cost of living.

The university recently released new data for 2019, and it shows that 50% of Americans over age 65 living alone have incomes that are below the index – in other words, they lack the resources to pay for their basic living needs. For couples – who usually benefit from two Social Security checks and are more likely to have other income – the comparable figure is 23%.

Those figures are shocking, and they are much more dire than the federal measure of poverty used to establish eligibility for many state and federal assistance programs. For example, a measure used by the U.S. Department of Health and Human Services defined poverty for single people last year at annual incomes of $12,490 and $16,910 for couples. That translates into poverty rates of 18% for singles and 5% for couples – much lower than what the Elderly Index suggests.

These elders live in what Mutchler calls a “gap.” “They’re not poor enough to be considered poor by the federal government, but they fall below what they need to get by and so they’re struggling.”

REMEDIES

The best way to ease this economic stress is through strengthening our two key social insurance programs. “Strengthening and stabilizing Social Security and Medicare is very important,” Mutchler said. “And then, we should strengthen and expand support for the housing needs of older people.”

To which I would add – not just older people today. Strengthening our social insurance programs will be even more beneficial for young people, who will arrive at retirement with smaller retirement accounts and much less likely to lay claim to a traditional defined benefit pension.

Social Security reform has been a hot topic on the presidential campaign trail this year, with Democrats competing for pole position as champions of expanded benefits.

A review of candidate positions on Social Security reform by the Center for Retirement Research at Boston College found several Democrats backing across-the-board benefit expansion, and a larger number favoring increases targeting vulnerable seniors. The latter include increasing Social Security’s special minimum benefit, which aims to keep very low-income workers out of poverty in retirement; expanding Social Security benefits for caregivers; and raising benefits for surviving spouses.

Targeted increases enjoy broad bipartisan support. A 2016 commission on retirement security organized by the Bipartisan Policy Center  endorsed several ideas of this type.

“It’s entirely appropriate to focus on parts of the population where current benefits are inadequate,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center. “People with low incomes can work a long career and still be getting benefits below the poverty line, or not very much above it. We need to make sure seniors who have worked for many years are not forced to live in poverty in retirement.”

President Donald Trump ran in 2016 opposing any cuts to Social Security benefits and pledged to “protect” Social Security in his recent State of the Union address. But he also recently hinted that he might push for benefit cuts in a second term in an interview with CNBC. And his 2021 budget plan, unveiled this week, contains an array of cuts to social insurance and safety net programs, including tightened eligibility requirements for Social Security’s disability program.

No moderator has posed a question about Social Security to candidates at any of the presidential debates so far. Perhaps they think it is a topic of interest only to the geezers, or the “OK boomers.”

But they would be wrong.

(Reporting by Mark Miller in Chicago; Editing by Matthew Lewis)

 

Fed says risks to economy easing, but calls out coronavirus in report to Congress

By Howard Schneider and Lindsay Dunsmuir

WASHINGTON (Reuters) – A “moderately” expanding U.S. economy was slowed last year by a manufacturing slump and weak global growth, but key risks have receded and the likelihood of recession has declined, the U.S. Federal Reserve reported in its latest monetary policy report to the U.S. Congress.

“Downside risks to the U.S. outlook seem to have receded in the latter part of the year, as the conflicts over trade policy diminished somewhat, economic growth abroad showed signs of stabilizing, and financial conditions eased,” the Fed said, noting that the U.S. job market and consumer spending remained strong.

“The likelihood of a recession occurring over the next year has fallen noticeably in recent months.”

Among the risks the Fed did note: the fallout from the spreading outbreak of coronavirus in China, “elevated” asset values, and near-record levels of low-grade corporate debt that the Fed fears could become a problem in an economic downturn.

Overall, however, the Fed saw risks to a more than decade long U.S. recovery easing following its three interest rate cuts in 2019, and evidence that “the global slowdown in manufacturing and trade appears to be at an end, and consumer spending and services activity around the world continue to hold up.”

It cautioned that “the recent emergence of the coronavirus, however, could lead to disruptions in China that spill over to the rest of the global economy.”

By law the Fed twice a year prepares a formal report for the U.S. Congress on the state of the economy and monetary policy.

Much of its amounts to a review of recent events. The new document repeats the Fed’s assessment that the current level of the federal funds rate, in a range of between 1.5% and 1.75% was “appropriate” to keep the recovery track.

It also reviewed the spike in the federal funds rate last fall and the steps the Fed has taken to relieve funding pressures, repeating it considers the measures technical and not a change in monetary policy.

Fed Chair Jerome Powell will present the report at two public hearings next week, and some Democratic U.S. senators have already posed in writing a series of questions challenging the Fed’s actions in those short-term funding markets.

The document did include a separate section analyzing how a slump in manufacturing last year impacted economic growth overall, after concern a downturn in that sector might pull the United States into a recession.

The Fed concluded that the slowdown in factory output, which also meant less business for parts and services suppliers, cut overall growth in gross domestic product between 0.2 and 0.5 percentage points.

That falls “well short” of the threshold associated with past recessions, the Fed said.

(Reporting by Howard Schneider and Lindsay Dunsmuir; Editing by Andrea Ricci)

Trump signs USMCA, ‘ending the NAFTA nightmare’; key Democrats not invited

By Jeff Mason and Andrea Shalal

WASHINGTON (Reuters) – President Donald Trump on Wednesday signed a new North American trade agreement during an outdoor ceremony at the White House attended by about 400 guests – but not the key Democrats who helped secure congressional passage of the deal.

Trump, on trial in the U.S. Senate on charges of abusing power and obstructing Congress, welcomed Republican senators at the South Lawn event by name. Other guests included lawmakers from around the country, workers, farmers and chief executives, as well as officials from Mexico and Canada, the White House said.

The U.S.-Mexico-Canada Agreement (USMCA) will replace the 26-year-old North American Free Trade Agreement, including tougher rules on labor and automotive content but leaving $1.2 trillion in annual U.S.-Mexico-Canada trade flows largely unchanged.

“Today, we are finally ending the NAFTA nightmare and signing into law the brand-new U.S.-Mexico-Canada Agreement,” Trump told the crowd. Flanked by a group of American workers wearing hard hats, Trump said the agreement would bolster U.S. economic growth, benefiting farmers, workers and manufacturers.

He said his concerns about NAFTA-triggered outsourcing had triggered his run for the presidency in 2016.

A wide array of business groups welcomed the agreement, which must still be ratified by Canada’s parliament before it can take effect. Mexico has already approved the deal.

Canadian Prime Minister Justin Trudeau, speaking in Ottawa, said his minority government would continue to answer questions posed by various industries and other groups.

“We have questions and we have a process for ratification. I just look forward to getting, getting through it responsibly and rapidly because it’s so important for Canadians,” he said.

NO DEMOCRATS

Excluded from the event were House of Representatives Speaker Nancy Pelosi, House Ways and Means Committee Chairman Richard Neal and other Democrats who negotiated with the Trump administration for months to expand the pact’s labor, environmental and enforcement provisions and pave the way for its approval by the Democratic-controlled House.

Trump did not mention the work done by Pelosi or other Democrats on the trade pact, but U.S. Trade Representative Robert Lighthizer, in his remarks at the ceremony, acknowledged the role that House leaders played in getting the deal done.

The event came as U.S. senators will start to pose questions in Trump’s impeachment trial and ahead of a key vote later this week on whether to allow the calling of witnesses like former national security adviser John Bolton.

Trump lashed out against Bolton on Twitter on Wednesday after Bolton wrote in an unpublished book manuscript that the president told him he wanted to freeze $391 million in security aid to Ukraine until Kiev pursued investigations of Democrats, including former Vice President Joe Biden, a top contender for the Democratic nomination to face Trump in this year’s election.

Pelosi told reporters that Democrats had ensured “vast improvements” to the USMCA before it was approved, despite their absence from Trump’s White House event, adding, “I hope he understands what he’s signing today.”

Neal told reporters some Republican senators thought the deal was “too Democratic.” He said the final accord won stronger protections for workers, better enforcement of environmental provisions and steps to prevent higher drug prices.

Representative Rosa DeLauro told reporters in a separate teleconference that Democrats would remain vigilant on oversight of the improved trade deal and would fight for even better climate protections in future trade deals.

The U.S. Senate this month overwhelmingly approved legislation to implement the USMCA, sending the measure to Trump for signing into law.

U.S. lawmakers said it was unclear when the accord would take effect, since Canada’s main opposition Conservative Party had expressed concerns about aspects of the deal and there was no exact timeline for ratification there.

Even after Canada ratifies the accord, implementation could take several more months since the three countries must show they are meeting their obligations before the clock starts ticking on an effective date.

(Reporting by Andrea Shalal and Jeff Mason; Additional reporting by Susan Heavey, David Shepardson and Alexandra Alper in Washington, and David Ljunggren in Ottawa; Editing by Clarence Fernandez, Dan Grebler and Jonathan Oatis)

China’s Li pledges medical reinforcements as virus toll hits 81

China’s Li pledges medical reinforcements as virus toll hits 81
By Winni Zhou and Josh Horwitz

SHANGHAI (Reuters) – Chinese Premier Li Keqiang will “inspect and direct” efforts to control a virus outbreak in the central city of Wuhan and promised reinforcements, as provincial authorities faced accusations from the public of a failure to respond in time.

World shares slipped to their lowest in two weeks as worries grew about the economic impact of the coronavirus after China, the world’s second-biggest economy, ramped up travel bans and extended the Lunar New Year holidays.

Li, clad in a blue protective suit and mask, thanked medical workers in Wuhan, the capital of Hubei province and the epicenter of the outbreak, as the death toll rose to 81.

“Li … thanked frontline medical workers for their all-out efforts in treating patients and urged them to pay attention to their own protection,” Xinhua news agency said.

“He required efforts to guarantee medical resources supply, race against time to treat patients and ensure adequate market supply and stable prices.”

He said 2,500 more medical workers would arrive in the next two days.

Li is the most senior leader to visit Wuhan since the outbreak began. He inspected efforts to contain the epidemic and was shown on state television leading medical workers in chants of “Wuhan jiayou!” – an exhortation to keep their strength up.

He also visited the construction site of a new hospital due to be built in days.

On China’s heavily censored social media, where dissent is typically suppressed, local officials have borne the brunt of mounting public anger about the handling of the virus.

Some lashed out at the Hubei governor, who had to correct himself twice during a news conference over the number of face masks being produced in the province.

“If he can mess up the data multiple times, no wonder the disease has spread so severely,” one Weibo user said.

Wuhan Mayor Zhou Xianwang told state broadcaster CCTV the city’s management of the crisis was “not good enough” – rare public self-criticism for a Chinese official – and said he was willing to resign.

The city of 11 million people is in virtual lockdown and much of Hubei, home to nearly 60 million people, is under some kind of travel curb.

People from Hubei have come under scrutiny within mainland China as well, with many facing suspicion from officials about their recent travels.

“Hubei people are getting discriminated against,” a Wuhan resident complained on the Weibo social media platform.

SHARES TUMBLE

A small number of cases linked to people who traveled from Wuhan have been confirmed in more than 10 countries, including Thailand, France, Japan and the United States, but no deaths have been reported outside China.

Investors are worried about the impact on travel, tourism and broader economic activity. The consensus is that in the short term, economic output will be hit as Chinese authorities impose travel restrictions and extend the week-long Lunar New Year holiday, when millions traditionally travel by rail, road and plane, by three days to limit the spread of the virus.

Asian and European shares tumbled, with Japan’s Nikkei average sliding 2%, its biggest one-day fall in five months. Demand spiked for safe-haven assets such as the Japanese yen and Treasury notes. European stocks fell more than 2%.

During the 2002-2003 outbreak of Severe Acute Respiratory Syndrome (SARS), a coronavirus that originated in China and killed nearly 800 people globally, air passenger demand in Asia plunged 45%. The travel industry is more reliant on Chinese travelers now than it was then.

The total number of confirmed cases in China rose to 2,835, with about half in the central province of Hubei. But some experts suspect the number of infected people is much higher.

Chinese-ruled Hong Kong, which has had eight confirmed cases, banned entry to people who had visited Hubei in the past 14 days.

The number of deaths from the virus in Hubei climbed to 76 from 56, officials said, with five deaths elsewhere in China.

WHO DIRECTOR ARRIVES IN CHINA

The newly identified coronavirus is believed to have originated late last year in a Wuhan market illegally selling wildlife. Much is not known, including how easily it spreads and just how deadly it is.

National Health Commission Minister Ma Xiaowei said on Sunday the incubation period could range from one to 14 days, and the virus was infectious during incubation, unlike SARS.

The World Health Organization (WHO) estimated an incubation period of two to 10 days.

WHO Director-General Tedros Adhanom Ghebreyesus had arrived in China and would meet officials working on the response, his agency said.

Some of China’s biggest companies have been affected, with hotpot restaurant chain Haidilao International Holding shutting branches nationwide from Sunday until Friday.

Gaming giant Tencent Holdings Ltd advised staff to work from home until Feb. 7, and e-commerce firm Alibaba removed vendors’ offers of overpriced face masks from its online Taobao marketplace as prices surged.

(Reporting by Winni Zhou, Wu Huizhong, Sun Yilei and Josh Horwitz; Additional reporting by Hideyuki Sano in Tokyo, Lidia Kelly in Sydney, Stephanie Ulmer-Nebehay in Geneva, Kate Kelland in London; Writing by Robert Birsel, Tony Munroe and Nick Macfie; Editing by Clarence Fernandez and Alison Williams)

U.S., China set to sign massive purchases deal, easing trade war

By David Lawder

WASHINGTON (Reuters) – U.S. President Donald Trump and Chinese Vice Premier Liu He will sign an initial trade deal on Wednesday that will roll back some tariffs and see China boost purchases of U.S. goods and services, defusing an 18-month conflict between the world’s two largest economies.

Liu said the two sides will work more closely together to obtain tangible results and achieve a win-win relationship despite differences in their political and economic models, China’s official Xinhua news agency reported on Wednesday.

U.S. officials called the deal a huge win that marked a significant shift in Washington’s relations with China, but said it included a tough enforcement measure that could trigger renewed tariffs if Beijing does not live up to its promises.

The Phase 1 agreement caps a trade war marked by tit-for-tat tariffs that has hit hundreds of billions of dollars in goods, roiling financial markets, uprooting supply chains and slowing global growth.

Some analysts and economists have questioned whether the outcome of the drawn-out talks justified that economic pain.

Trump and Liu, who led the Chinese side in the trade talks with Washington, are scheduled to sign the 86-page Phase 1 deal at a White House event at 11:30 a.m. EST (1630 GMT) before over 200 invited guests from business, government and diplomatic circles.

It is not clear at this time whether the entire document will be released on Wednesday.

Trump, who entered the White House in 2017 vowing to rebalance global trade in favor of the United States, has already begun touting the deal as a pillar in his 2020 re-election campaign, calling it “a big beautiful monster” at a rally in Toledo, Ohio last week.

“Our farmers will take it in. I keep saying, ‘Go buy larger tractors, go buy larger tractors,'” Trump said.

The centerpiece of the deal is a pledge by China to purchase an additional $200 billion worth of U.S. farm products and other goods and services over two years. That will help reduce the bilateral U.S. trade deficit in goods, which peaked at $420 billion in 2018. The United States had a small services trade surplus with China of $40.5 billion in 2018.

Top White House economic adviser Larry Kudlow told Fox News the agreement would add 0.5 percentage point to U.S. gross domestic product growth in both 2020 and 2021.

Kudlow said the deal called for China to buy an additional $75 billion worth of U.S. manufactured goods over the two-year period. A source told Reuters this week that would include aircraft, autos and car parts, agricultural machinery and medical devices.

Beijing will boost energy purchases by some $50 billion and services by $40 billion, mostly in the financial sector, Kudlow said.

The Reuters source said agricultural purchases will get a $32 billion lift over the two years, compared to a 2017 baseline of U.S. exports to China.

When combined with the $24 billion in 2017 farm exports, the $16 billion annual increase approaches Trump’s goal of $40 billion to $50 billion in annual agricultural sales to China.

China will significantly increase imports of U.S. soybeans after the Phase 1 deal is signed, the Global Times reported on Wednesday, citing comments from a senior Chinese economist at a state think tank.

Wang Liaowei, senior economist at the China National Grain and Oils Information Center, which is under the National Food and Strategic Reserves Administration, also told the paper that imports of U.S. products such as pork and cotton could also see a jump.

Although the deal could be a big boost to farmers, planemaker Boeing <BA.N>, U.S. automakers and heavy equipment manufacturers, some analysts question https://af.reuters.com/article/commoditiesNews/idAFL4N29J26S China’s ability to divert imports from other trading partners to the United States.

“I find a radical shift in Chinese spending unlikely. I have low expectations for meeting stated goals,” said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis. “But I do think the whole negotiation has moved the football forward for both the U.S. and China.”

TARIFFS TO STAY

The Phase 1 deal, reached in December, canceled planned U.S. tariffs on Chinese-made cellphones, toys and laptop computers and halved the tariff rate to 7.5% on about $120 billion worth of other Chinese goods, including flat panel televisions, Bluetooth headphones and footwear.

But it will leave in place 25% tariffs on a vast, $250 billion array of Chinese industrial goods and components used by U.S. manufacturers.

U.S. Treasury Secretary Steven Mnuchin told CNBC on Wednesday the deal would boost the U.S. economy, and that Washington could lower tariffs as part of a Phase 2 agreement that would address complex issues such as cybersecurity.

Mnuchin said the U.S. relationship with China was complicated and Washington would continue to raise humanitarian and national security concerns with Beijing in separate discussions. “You have to negotiate different pieces at different times,” he said.

He said Chinese telecom equipment maker Huawei Technologies Co Ltd was not a “chess piece” in the economic negotiations.

China’s Global Times said the Phase 2 discussions may not start anytime soon.

Evidence is mounting that tariffs have raised input costs for U.S. manufacturers, eroding their competitiveness.

Diesel engine maker Cummins Inc <CMI.N> said on Tuesday that the deal will leave it paying $150 million in tariffs for engines and castings that it produces in China.

The company issued a tepid statement of approval on Tuesday: “We believe this is a positive step and remain optimistic that all parties will remain at the table in order to create a pathway to eliminate all of the instituted tariffs.”

Lighthizer and Mnuchin insisted there were no side agreements to remove more tariffs after the November U.S. elections. Mnuchin on Wednesday reiterated that Trump could consider easing tariffs if the two countries move quickly to seal a Phase 2 follow-up agreement.

CORE ISSUES UNTOUCHED

The Phase 1 deal includes pledges by China to forbid the forced transfer of American technology to Chinese firms as well as to increase protections for U.S. intellectual property.

But it stops well short of addressing the core U.S. complaints about China’s trade and intellectual property practices that prompted the Trump administration to pressure Beijing for changes in early 2017.

The deal contains no provisions to rein in rampant subsidies for state-owned enterprises, which the administration blames for excess capacity in steel and aluminum and says threaten industries from aircraft to semiconductors.

It also fails to address digital trade restrictions and China’s onerous cybersecurity regulations that have hobbled U.S. technology firms in China.

China has agreed in the Phase 1 deal to open its financial services sector more widely to U.S. firms, and to refrain from deliberately pushing down its currency to gain a trade advantage, the latter prompting Treasury to drop its currency manipulator label on Beijing.

(Additional reporting by Lisa Lambert, Andrea Shalal, Echo Wang, Alexandra Alper, and Herb Lash in New York, and Se Young Lee and Stella Qui in Beijing; Editing by Simon Cameron-Moore and Paul Simao)

China to ramp up U.S. car, aircraft, energy purchases in trade deal: source

By David Lawder and Andrea Shalal

WASHINGTON (Reuters) – China has pledged to buy almost $80 billion of additional manufactured goods from the United States over the next two years as part of a trade war truce, according to a source, a target that could provide a much-needed boost for planemaker Boeing but is being questioned by U.S. trade experts.

Under the trade deal to be signed on Wednesday in Washington, China would also buy over $50 billion more in energy supplies, and boost purchases of U.S. services by about $35 billion over the same two-year period, the source told Reuters late on Monday.

The Phase 1 agreement calls for Chinese purchases of U.S. agricultural goods to increase by some $32 billion over two years, or roughly $16 billion a year, said the source, who was briefed on the deal.

When combined with the $24 billion U.S. agricultural export baseline in 2017, the total gets close to the $40 billion annual goal touted by U.S. President Donald Trump.

The numbers are expected to be announced at Wednesday’s White House signing ceremony between Trump and Chinese Vice Premier Liu He and represent a staggering increase over recent Chinese imports of U.S. manufactured goods. The size of the targets has raised questions https://af.reuters.com/article/commoditiesNews/idAFL4N29J26S about how realistic they are.

BEYOND THE FARM

Two other sources familiar with the Phase 1 trade deal agreed with the rough breakdown of the purchases, without providing specific numbers.

A spokesman for U.S. Trade Representative Robert Lighthizer’s office could not immediately be reached for comment.

Lighthizer on Monday called the deal a “huge step forward” for U.S.-China trade relations and “a really, really good deal for the United States.” He told Fox Business Network that Beijing’s compliance would be monitored closely.

Lighthizer and his counterparts from Japan and the European Union on Tuesday took aim at China, proposing new global trade rules to curb subsidies that they say are distorting the worldwide economy.

Beijing’s subsidies to state-owned firms are expected to be addressed under a later Phase 2 U.S.-China trade deal, but it remains unclear when those negotiations will begin.

Senate Democratic Leader Chuck Schumer warned Trump in a letter that a weak agreement that failed to address what he called China’s “rapacious trade behaviors” and structural inequities would harm U.S. workers and firms for years to come.

When the Phase 1 trade deal was struck on Dec. 13, U.S. officials said China had agreed to buy $200 billion in additional U.S. farm products, manufactured goods, energy and services over the next two years, compared to the baseline of 2017.

They said they would publish targets for the four broad areas, but would keep details of specific products classified to avoid market distortions.

The $32 billion agriculture increase over 2017 was confirmed by Myron Brilliant, the U.S. Chamber of Commerce’s head of international affairs, who spoke to reporters on Monday in Beijing.

Analysts and traders doubted whether China could absorb such a big increase. Relying on the United States so heavily could expose China to price and supply risks, they said.

Large Chinese purchases of Brazilian soybeans and Beijing’s suspension of a plan to implement a nationwide gasoline blend containing 10% ethanol this year have also raised questions about China’s ability to double its imports of U.S. farm products.

Trump had mainly touted the increased farm exports, which would benefit a major political constituency that has been battered by Chinese retaliatory tariffs during his 18-month trade war with Beijing.

Company executives have been waiting eagerly for details of what other U.S. goods China would be buying more of, aside from farm products, after 18 months of tit-for-tat tariffs that have stalled U.S. business investment.

MANUFACTURING CHALLENGES

The $80 billion increase for manufactured goods includes significant purchases of autos, auto parts, aircraft, agricultural machinery, medical devices and semiconductors, said one of the sources, without naming any specific suppliers.

The aircraft would likely be built by Boeing Co <BA.N>, the No. 1 U.S. exporter, whose new sales to China have ground to a halt over the past two years. That would be a welcome boost for the aerospace giant, where shares and earnings have plummeted as its best-selling 737 MAX aircraft remains grounded due to two fatal crashes.

The source providing the purchase figures expressed skepticism about manufactured goods pledges by Beijing since the U.S.-China trade deal does not address any of the non-tariff barriers that have kept these U.S. goods out of the Chinese market for decades, including procurement rules, product standards and subsidies to Chinese state-owned firms.

With Chinese car sales flagging and excess domestic assembly capacity on the rise, China would seem unlikely to purchase significantly more U.S.-built cars. Among the most popular U.S.-built vehicles sold in China are BMW <BMWG.DE> and Mercedes-Benz <DAIGn.DE> sport-utility vehicles.

China also has major industrial policy goals to dominate the very manufacturing sectors in which it has pledged to pump up purchases of U.S. goods, further fueling skepticism.

Many economists and experts are dubious the Phase 1 trade agreement will be implemented as written, despite what U.S. officials describe as an important enforcement clause.

If a U.S. claim of Chinese non-compliance cannot be resolved, Washington would have the right to reimpose tariffs on Chinese goods in proportion to the economic damage alleged. But nothing would preclude China from retaliating, people familiar with the deal said.

Oil traders and analysts were also doubtful whether China would be able to purchase an extra $50 billion of energy products, including crude oil, liquefied natural gas (LNG) and imports of petrochemical raw materials such as ethane and liquefied petroleum gas (LPG).

(Additional reporting by Gabriel Crossley and Hallie Gu in Beijing, and Florence Tan in Singapore; Editing by Simon Cameron-Moore and Howard Goller)