China, U.S. Hold Phone Call in Sign of Progress on Phase One Deal

(Bloomberg) — China and the U.S. “reached consensus on properly resolving relevant issues” and agreed to stay in contact on the remaining points for a phase one trade deal during a phone call Tuesday morning Beijing time, the Ministry of Commerce said in a statement.

Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin discussed core concerns, according to the statement, which didn’t provide further details. It follows a phone conversation earlier this month that the ministry called “constructive.”

The U.S. Trade Representative’s office confirmed Tuesday’s discussion took place but declined to comment on the contents.

Talks on the phase one deal have continued since it was first announced in October, with both sides making concessions recently on issues such as food imports, intellectual property and tech giant Huawei Technologies Co. Ltd. Liu, China’s chief negotiator, said last week that he was “cautiously optimistic” about concluding a phase one deal, but the lack of a deadline and comments from President Donald Trump and others have led to speculation that talks could extend into next year.

Asian stocks gained Tuesday amid optimism over the talks and a fresh wave of merger and acquisition activity. The yen slipped.

If a phase one deal does not materialize before Dec. 15, Trump will have to choose whether to carry out his previous threat to impose 15% tariffs on some $160 billion in imports from China. Relations between the two sides are also complicated by passage of a bill through the U.S. legislature that supports pro-democracy demonstrators in Hong Kong, and President Xi Jinping has called for an equal agreement.

Officials on the call Tuesday may have discussed tariff removal, agricultural purchases and a review mechanism for the implementation of a potential agreement, Global Times reported, citing unidentified expert close to the trade talks.

Trump said last week that a trade deal with China was “potentially very close” but it “can’t be like an even deal” because the U.S. is “starting off from the floor” and China is “already at the ceiling.

“Key is what happens if we do not get a deal by 15 December,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore. “Will the U.S. agree to suspend the tariffs out of goodwill?”

Even if a first phase deal is signed, it may well skirt more difficult issues such as U.S. concern about Chinese subsidies and protectionism, or attempts to shut out Chinese technology companies from the U.S. market over security threats. Ongoing civil unrest in Hong Kong and China’s actions in Xinjiang are becoming additional points of tension.

Contact editor Yang Ge (geyang@caixin.com)