Sry Mulyani Indrawati sees the signing of phase one deal provides much-needed certainty for the global economy - Photo by the White House.

JAKARTA (TheInsiderStories) – Indonesian finance minister Sry Mulyani Indrawati sees the signing of phase one deal between the world’s two largest economies, United States (US) and China, provides much-needed certainty for the global economy. The deals represent a major positive step for world trade, after a protracted bilateral trade dispute that has had significant negative transmission effects to international trade flow.

“The phase one agreement provides much-needed certainty for the global economy. The tit-for-tat tariff war between the two biggest economies in the world has affected the flow of international trade for nearly two years. So this initial trade deal needs to be appreciated as it gives certainty,” Indrawati told reporters on Thursday (01/16).

The minister adds a key focus in 2020 will be on the progress of the US-China phase two trade talks, which could provide another positive boost to global and regional trade flows if a further phase two trade deal can be agreed.

President Donald Trump and Chinese Vice Premier Liu He signed a phase-one trade deal on Wednesday in Washington, marks a major step in efforts to rein in a more than an 18-month trade war between Washington and Beijing.

The deal significantly gives a positive step for world trade. IHS Markit noted the Dow Jones and S&P 500 indexes have reached record highs on 15 January on the news of the signing of the phase one trade deal, which is very positive for US exports to China and also will boost Chinese exports to the US.

Total US exports to China are expected to be strongly buoyed by an additional $200 billion of Chinese imports of US goods and services over 2020 and 2021, under the terms of the phase one trade deal. Total US exports to China will be $123.3 billion higher than the 2017 baseline, which would amount to a very large reduction in the US-China bilateral trade deficit and a large boost to US exports of manufactures, agricultural products, energy products, and services.

For the manufacturing sector, China has committed to import an additional $32.9 billion of US manufactured goods above the 2017 baseline amount in 2020 and $44.8 billion above the 2017 baseline amounts in 2021. For the agricultural sector, China has committed to import an additional $12.5 billion of US agricultural products above the 2017 baseline amount in 2020 and $19.5 billion above the 2017 baseline amounts in 2021.

For the energy sector, China has committed to import an additional $18.5 billion of US energy products above the 2017 baseline amount in 2020 and $33.9 billion above the 2017 baseline amounts in 2021. For the services sector, China has committed to import an additional $12.8 billion of US services above the 2017 baseline amount in 2020 and $25.1 billion above the 2017 baseline amounts in 2021.

“Another important positive under the phase one trade deal, Biswas said, is the agreement on macroeconomic policies and exchange rate matters, which provides commitments to refrain from competitive devaluations to unfairly compete in international trade,” Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit, said in a statement.

As a result of this bilateral deal covering exchange rate matters, he adds, the US Treasury has withdrawn its designation of China as a currency manipulator in its twice-yearly report to Congress released on 13 January 2020.

Biswas opined the Asia-Pacific manufacturing supply chain has been badly hit by the contagion effects of the significant downturn in China’s exports to the US during 2018 and 2019 The new bilateral trade deal will help to boost regional trade flows as China’s manufacturing exports to the US are expected to rebound following the significant reduction in US tariffs agreed under the phase one deal.

“The phase one trade deal represents an important positive development for the Asia-Pacific trade outlook in 2020. However, the US has still kept in place steep tariffs at a rate of 25 percent on $250 billion of Chinese exports to the US, so the US-China trade dispute remains a significant drag on regional trade,” he rated.

The process of supply chain diversification by global multinationals away from China is expected to continue despite the phase one trade deal since substantial US tariffs remain in place on Chinese exports to the US. These factors are continuing to boost foreign direct investment inflows into Southeast Asian low-cost manufacturing hubs in Indonesia, Vietnam, Philippines, Thailand, and Myanmar.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com