US and China reach limited trade deal

Nick Beams

The US and China have reached a partial and very limited agreement on trade following talks held in Washington on Thursday and Friday.

It provides for a pullback by the US of a tariff hike on $250 billion worth of Chinese goods that had been threatened for next week. In return China has increased purchases of US agricultural products and agreed on the need for stabilization of the Chinese currency.

The limited agreement was described by US President Trump as a “substantial phase one deal” following a meeting yesterday with Chinese vice-premier and chief trade negotiator Liu He at the White House. The full text will be finalised in discussions between US and Chinese officials over the next five weeks.

China has agreed to purchase $40 billion to $50 billion worth of additional US agricultural products and gave a commitment to further open its economy to the operation of international financial services. It has also agreed to tighten control of intellectual property in response to continuous US allegations of theft.

In addition, the two sides reported progress on other matters, without providing details, including intellectual property and currency movements. No agreement was finalised on a pact to deal with currency manipulation, but US Treasury Secretary Steven Mnuchin said discussions were “almost complete.”

The reaching of a deal is the result of a shift by the Trump administration. In the lead up to the talks, Trump made clear on numerous occasions that he was not inclined to make a limited agreement and preferred a big deal or not one at all.

But facing the possibility of a sharp fall on markets if negotiations had broken down and amid the ongoing pressure created by the Democrats impeachment investigation, Trump appears to have decided to claim a win.

The markets responded enthusiastically with the Dow up 500 points at one point during the day, before finishing up by more than 300 points.

For all the celebrations on Wall Street, however, the agreement is very limited, described by one financial analyst in a comment to the Financial Times as “cosmetic.” While China will make additional purchases of agricultural products, they may not even reach the level attained before the trade conflict broke out.

Overall, the Chinese concessions have been described as “relatively minor”—essentially a repackaging of measures it had agreed to in previous rounds of talks.

The US has made little movement. None of the existing tariffs will be removed or even reduced. The major component of deal is the US decision to suspend the threatened hike in tariffs on $250 billion worth of Chinese goods from 25 percent to 30 percent, which had been set to take effect next week.

At this point, the agreement does not appear to include the withdrawal of a 15 percent tariff on more than $150 billion worth of Chinese consumer products, scheduled to come into effect on December 15.