Caixin
Dec 13, 2019 01:02 PM
ECONOMY

Trump Approves Draft U.S.-China Trade Deal to Halt Looming Tariffs

Photo: VCG
Photo: VCG

U.S. President Donald Trump has reportedly approved a U.S.-China phase one trade deal proposal that would include a roll-back of existing tariffs on Chinese products and a halt to threatened new hikes, in exchange for China’s pledge to sharply boost its buying of American agricultural products in 2020.

Citing people familiar with the matter, Bloomberg reported that Trump signed off on the deal, which will avert a threatened introduction of a new wave of U.S. tariffs on about $160 billion of Chinese consumer goods set to take effect Dec. 15.

The U.S. would also offer to cut existing punitive tariffs on Chinese goods by as much as 50% in an effort to deescalate the bitter trade war with China that began more than a year ago, according to a Reuters report, citing two people familiar with the negotiations.

In return, China would agree to buy $50 billion in U.S. agricultural goods next year, double what it bought in 2017 before the trade war started, the Reuters report said.

Neither Washington nor Beijing has released any official statements on an agreement or what specifics such an agreement might include. The reported deal was presented to Trump by his trade advisers on Thursday and the legal text has not yet been finalized, Bloomberg reported.

The administration has reached out to allies on Capitol Hill and in the business community to issue statements of support once the announcement is made, sources told Bloomberg. Before meeting his trade advisers, Trump engaged with members of the Business Roundtable, which represents some of the largest U.S. companies, the sources added.

Markets rallied in both the U.S. and China in response to the reports. In China, the main composite indexes in Shanghai and Shenzhen were up about 1.3% late in the morning session, though both were well off their highs for the year. Hong Kong’s Hang Seng Index, which tracks sentiment toward China among foreign investors, was up 2%.

The yuan also rallied to its strongest levels in four months on optimism about the potential for trade to improve with the removal of some tariffs. The onshore rate advanced as much as 1% to 6.9570 per dollar Friday, the strongest since Aug. 2 on an intraday basis

U.S. stocks rose to records earlier Thursday as optimism grew that there would be a deal. Trump tweeted that the U.S. and China are “VERY close” to signing a “BIG” trade deal.

“They want it, and so do we!” he tweeted five minutes after equity markets opened in New York, sending stocks to new records.

Trump has changed his mind on deals with China before. Negotiators have been working on the terms of the phase-one deal for months after the president announced in October that the two nations had reached an agreement that could be put on paper within weeks.

The U.S. has added a 25% duty on about $250 billion of Chinese products and a 15% levy on another $110 billion of its imports over the course of a roughly 20-month trade war. Discussions now are focused on reducing those rates by as much as half, as part of the interim agreement Trump announced almost nine weeks ago.

In addition to a significant increase in Chinese agricultural purchases in exchange for tariff relief, officials have also said a phase-one pact would include Chinese commitments to do more to stop intellectual-property theft and an agreement by both sides not to manipulate their currencies.

Put off for later discussions are knotty issues such as longstanding U.S. complaints over the vast web of subsidies ranging from cheap electricity to low-cost loans that China has used to build its industrial might.

The new duties, which were scheduled to take effect at 12:01 a.m. Washington time on Sunday unless the administration says otherwise, would hit consumer goods from China including smartphones and toys.

Reporting by Bloomberg and Caixin

Contact report Lu Zhenhua (zhenhualu@caixin.com)

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