Business & Tech

US, China settle on outline of elusive phase one trade deal

On Thursday morning, President Trump tweeted: “Getting VERY close to a BIG DEAL with China.”
Al Drago/New York Times
On Thursday morning, President Trump tweeted: “Getting VERY close to a BIG DEAL with China.”

The United States and China have settled on final terms of a phase one trade deal, moving both countries closer to signing a pact that President Trump originally announced in October, four people familiar with the negotiations said.

Trump met with his top economic advisers at the White House on Thursday afternoon to discuss an arrangement that would slash the overall rate on the tariffs he has placed on $360 billion of goods by half, in return for Chinese commitments to purchase American agriculture and other concessions, the people said.

The president was widely expected to announce that he would delay or cancel new tariffs that were scheduled to go into effect on $160 billion of consumer products from China as of Sunday. On Thursday morning, he tweeted that the United States was closing in on a trade deal with China.

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“Getting VERY close to a BIG DEAL with China. They want it, and so do we!” the president wrote on Twitter on Thursday morning.

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Trump has yet to make an official announcement, and some advisers have cautioned that the president is the final arbiter of whether there will be a deal. Both sides have said they were on the verge of a deal before, only to see those agreements collapse.

The Chinese embassy in Washington directed inquiries to the Ministry of Commerce in Beijing.

Stocks rose to a record Thursday, with the S&P 500 gaining nearly 0.9 percent, and the yield on the 10-year Treasury note touched 1.91 percent, the highest level in almost a month.

The benchmark has been trading in record territory as investors anticipated a de-escalation of the trade war, and amid signs that the domestic economy is holding up.

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“We’re encouraged that China and the United States seem on the verge of a breakthrough on the phase one negotiations,” said Myron Brilliant, the executive vice president of the US Chamber of Commerce. “If accurate, it would be a positive first step in improving our commercial relationship at a time of great uncertainty.”

Trump announced in October that the United States and China had reached an agreement in principle on the first phase of a trade deal. But in the weeks since, a concrete agreement had proved elusive as the two countries continued to grapple over its precise terms.

Chinese negotiators pushed their American counterparts to remove as many of the existing tariffs as possible, while the Trump administration pushed China to make more purchases of soybeans, poultry, and other goods to help relieve the pressure the trade war has put on American farmers.

To ensure that China keeps its commitments, the Trump administration has insisted on quarterly reviews, as well as an agreement that China’s agricultural purchases would not drop below a certain amount. If China violates the terms of the agreement, tariffs that the Trump administration had removed would snap back into place.

China has been willing to discuss purchases of American agriculture, especially since a disease has devastated its swine population and led to spiraling pork prices. But in previous discussions, Chinese negotiators had pushed back against promising set purchase amounts far off into the future, saying such an arrangement could anger its trading partners and violate its commitments to the World Trade Organization to treat all members equally.

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Some of Trump’s advisers have argued that the president does not need China to commit to the full $40 billion to $50 billion of agricultural purchases that he said he had secured earlier this year. Instead, they say, Trump should focus on getting China to purchase more than the record of $26 billion of agricultural goods it bought in 2012, which would allow him to claim on the campaign trail that he had secured the biggest trade deal with China ever. The deal would also require China to strengthen its protections for American intellectual property and open its financial markets to foreign firms, among other changes.

In recent months, American and Chinese officials have been locked in a contentious discussion of what proportion of US concerns about Chinese economic practices are being addressed in the Phase 1 deal, and whether a corresponding proportion of Trump’s tariffs should be rolled back. The Chinese had enumerated the US requests into a list of more than 100 items, and have argued that if they resolve half of them, then half of Trump’s existing tariffs should be removed.

Some American analysts have criticized the approach, saying a significant reduction could leave the United States with less leverage for the second- and third-phase discussions that are planned in the future, in which even more difficult subjects like Chinese subsidies would be included. They also point to the depreciation in China’s currency, the renminbi, this year, saying that drop would almost offset the impact of the tariffs.

But others say an across-the-board reduction in the rate of all existing tariffs does offer the US some advantages, including not having to pick and choose between industries that would receive tariff relief.

The last tranche of tariffs, which is scheduled to go into effect at 12:01 a.m. on Dec. 15, would extend levies to cover nearly every shoe, laptop, and toy that the United States imports from China — a total of $539.5 billion of merchandise last year. Companies have been eagerly watching to see whether the administration would issue the official announcement that will stop those levies from going into effect.

Many of Trump’s advisers have been wary of increasing tariffs on China at a moment when negotiators from both sides are trying to reach agreement on the first phase of a trade deal.

Still, the urge to delay the tariffs — or to reach a deal — has not been unanimous. Peter Navarro, Trump’s hawkish trade adviser, circulated a memo this week that makes the case for forging ahead with additional tariffs and delaying any deal until after the 2020 election.