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China pledged to buy billions of dollars worth of American steel

North America / Asia

As part of the "Phase One" trade deal with the United States, China has pledged to increase purchases of iron and steel, as well as rare earth metals in exchange for what is not yet clear.

China pledged to buy billions of dollars worth of American steel

China has pledged to buy significant quantities of commodities such as oil, liquefied natural gas, metals and coal from the United States as part of a "first phase" trade deal signed in Washington yesterday.

Beijing has committed itself to purchase $ 77.7 billion worth of industrial goods annually. This list includes iron and steel products and some rare earths, although these are likely a small part of the deal.

It is absolutely unclear how the United States will force Chinese companies to buy their steel in view of the fact that prices, for example, for hot-rolled sheet in the United States exceed $ 680 per tonne (excluding delivery), while similar rolled metal in China costs less than $ 500 for metal center warehouse.

Prior to this agreement, Chinese clients purchased rolled special steels from the United States that are not produced in the PRC. However, the import of such steels from the United States to China in 2019 does not exceed $ 300 million.

The target for energy and hydrocarbon purchases is set at $ 52.4 billion.

US energy exports to China peaked at $ 6.4 billion in January-June 2018 - an annualized rate of just under $ 13 billion - before plummeting as the trade war escalates to $ 8.3 billion for the full year .

The trade document shows ethanol is part of the $ 32 billion additional US agricultural commodity that China will buy.

All listed products are subject to Chinese import tariffs, which range from 5% for crude oil to 25% for many other products. The deal does not include any commitment on the part of Beijing to reduce or cancel its tariffs.

The agreement states that purchases will be made at market prices based on commercial considerations and market conditions.

While recognizing the need for further talks with China to address myriad other issues, President Donald Trump hailed the deal as a victory for the US economy and his administration's trade policy.

Leading White House economic adviser Larry Kudlow said the deal would add 0.5 percentage point to US GDP growth in 2020 and 2021.

Sources in the aviation industry said Boeing will receive a major order for wide-body aircraft from China, including its 787 or 777-9 or a combination thereof.

What China will get is not clear yet. Under Phase One, no US duties on Chinese goods will be lifted. The introduction of new duties on Chinese smartphones and electronic devices may be postponed. The import duty on laptops, gadgets and monitors will be reduced to 7.5%.

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