The world of finance, business and trade could finally let out a sigh of relief after US President Donald Trump and China’s chief trade negotiator, Vice-Premier Liu He, signed the first phase of a much-awaited trade deal. Immediate - and welcome - outcomes led to commodity prices, including oil, and financial markets heading up.
This shows has systemically important such an agreement was, not only for trade between the two countries, but for all countries given that it was concluded between the two largest economies.
Hence, all countries, including GCC states, must make a comprehensive evaluation of the implications. This is because the terms of the deal demand China to increase its purchases of US goods and services by $200 billion. This is in exchange for reducing US tariffs by half to 7.5 per cent on Chinese exports valued at $160 billion, while maintaining higher tariffs on other Chinese goods worth $350 billion until a second agreement after the US Presidential election in November.
A win for Trump
Although this agreement affects most countries, it is considered a great gain for Trump, who waged a fierce battle of rhetoric with China for almost a year-and-a-half and came to an deal that meets most of his conditions.
This will help him throughout his election campaign thanks to the economic advantages he will hope to achieve for key sectors in the US. Trump noted that this deal is a reward for American farmers who were affected by the trade war between the countries. It stated that China would increase its purchase of US agricultural commodities by $40 billion, in addition to energy and other services.
It was clear that from the very beginning that Trump focused on “American interests”. He themed his 2016 election campaign on “Make America Great Again” and now he is running another on “Keep America Great”. He has acted with transparency and patriotism that almost none of his predecessors had before. He does what he says... with transparency.
As for the trade deal, the first phase will see China enhance its energy purchases from the US by $50 billion, representing the largest share of US exports to that country.
This means the US, which has in recent years turned into a major source for oil and gas, will take a greater share of China’s energy imports. China - the largest oil importer in the world - saw volumes improve significantly last year by 9.5 per cent to 10.2 million barrels a day, most of it from the Gulf.
The China market is indeed a major outlet for Gulf energy exports of oil, gas and related commodities. However, these GCC exports will certainly be affected by the upsurge in China’s purchases of US energy supplies.
There is no doubt that other countries besides the US will eventually enter China’s supply lines thanks to steady growth in the consumption of energy sources. These include Australia for gas and Iran in oil, although Iranian oil exports to China stopped a year ago due to US sanctions. This is in addition to the expected upturn in oil production in some countries, such as Iraq, which intends to boost its production from 4- to 6 million barrels per day.
The US-China deal will not only affect GCC oil exports but also the agricultural shipments from Africa and Asia, and the services and industrial products of some European countries. This means GCC countries should consider the resultant implications, as this will not only impact the volume of supplies but also price levels, which are likely to be reduced by excess production and increased competition.