by Patrick Fearon-Hernandez, CFA

After months of negotiations, the U.S. and China signed “Phase One” of what is expected to be a multiple-phase trade deal.  After noting media response to the agreement, we were struck by the dismissive consensus narrative that has developed.  Our careful review of the document seemed to suggest a much more substantial arrangement had been struck and the general analysis missed a good deal of nuance.  In this report, we will offer a detailed recap of the official agreement.  We usually don’t engage in this sort of point-by-point analysis but, in this case, we feel it is necessary because points may have been overlooked.  Next week, in Part II, we will examine the implications of the deal, and, as always, close with market ramifications.

Intellectual Property
Even though President Trump has touted China’s commitment to ramp up U.S. imports under the deal, and media analysts have emphasized the U.S. promise to postpone or roll back its tariffs against China, the first 16 pages of the 94-page agreement focus on protecting intellectual property.  That suggests U.S. Trade Representative Lighthizer’s top priority was to rein in China’s longstanding efforts to soak up foreign technology and industrial secrets by hook or by crook.  It probably also signals the U.S. intention to pursue fundamental changes in China’s legal system and industrial structure over time.  The key provisions agreed upon include:

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