The U.S. and China have struck a trade deal in the first round of talks.
The deal comes mid-July, and enables U.S. firms to expand their business in the chicken and beef markets – along with a few other financial arrangements designed to cut trade deficits with Beijing, reports the Huffington Post.
The deals came from the first 100 days of trade negotiations between the two countries. While the meeting seemed friendly, no one knew about the intensity of the talks until now.
U.S. Commerce Secretary Wilbur Ross states that the trades will bring down deficits. Currently, the United States carries an astounding $347 billion trade deficit with China from 2016. By July 16th, China agrees to issue trade guidelines that allow United States card payment service companies to start licensing in China’s Union Pay market.
Too Little Gained?
China’s deal with the United States benefits beef producers and financial firms by providing them access to the international market, but in return, the benefits for the United States are not as appealing as some think. While it is an excellent start to trade talks, Beijing did not sacrifice much in the deal.
The deal comes from a 100-day plan, and American companies like MasterCard and Visa now have access to the Chinese market, reports the NY Times. Two financial institutions will receive bond underwriting, too.
While some say Beijing came out the winner, others believe that the deal was enough to get trade talks moving in the right direction. The U.S. needed concrete goals for trade talks, and this was one where everyone benefited. In addition, the likelihood of Beijing agreeing to this particular deal was high.
Will It Reduce the Deficit by Much?
The deal is a great start, but some say it will not do much to reduce the trade deficit with China. The gaps have widened since March of this year, and American-based companies might struggle to stay competitive with Chinese markets. China has already leapfrogged electronic payment services compared to the U.S., so United States-based companies may need to alter business methods if they want to succeed.
Stock Markets Respond to Trade Deal
After the announcement, Chicago Mercantile Exchange live cattle futures increased by 2%. The gains are in the hopes that China might boost imports of United States beef.
Feeder cattle features bumped by 3%, which increased the daily trade limits of 4,500 cents and a significant rebound from the previous quarter, reports Reuters. The market needed a significant upturn, and the trade deal announcement might be the answer to an already struggling trade market.
The demand for cattle futures is robust, and the cattle slaughter rate stays ahead of wholesale beef costs by 5.8 percent – the highest numbers since 2015.
Lean hog futures are also up, but they are not as prominent as beef and cattle futures.
American Beef is an International Competitor
While it is a small start in the right direction, beef is competitive to the global market. In fact, American beef is a premium product, while chicken is a complimentary trade offered by China. Chinese consumers prefer dark meat; therefore, they are more than willing to export the white chicken meat to the United States – where consumers prefer white meat over dark.
Chinese chicken imported into the U.S. might raise food safety concerns, due to a lack of consistency with raising and slaughtering practices in Beijing.
While Trump rallied against China, his softer stance toward Beijing indicates personal growth in the Trump administration. President Trump is embracing his diplomatic responsibility to strike favorable trade deals with ally countries to promote economic growth in the U.S.