China Sees U.S. Postponing Threatened Dec. 15 Tariff Increase
Chinese officials expect President Donald Trump to delay a threatened tariff increase set for Sunday, giving more time to negotiate an interim trade deal that both sides continue to insist is close to fruition despite a series of missed deadlines, according to people familiar with the discussions.
The two sides, staying in almost daily contact, have also come closer to an agreement on scaling back the tariffs already in place. But rather than removing or rolling back existing levies, the focus has been on reducing the rate of the tariffs already in effect, according to officials and other people familiar with the talks.
The U.S. has added a 25 per cent duty on about US$250 billion of Chinese products and a 15 per cent levy on another US$110 billion of its imports over the course of a 20-month trade war. Discussions now are focused on reducing those rates by as much as half. New tariffs are due to take effect on Dec. 15 on a list comprising some $160 billion in imports from China including consumer items like smartphones and toys.
People familiar with the discussions say Trump is expected to meet with his trade team on Thursday as discussions continue over a potential delay.
Asian stocks were off to a muted open on Wednesday as investors await developments. Japanese equities opened flat. They were modestly higher in Australia and South Korea. S&P 500 futures were little changed.
Beijing sees delaying that increase on imported consumer goods as allowing the talks to continue on the unfinished items in phase-one of the accord, two officials said on condition on anonymity because the conversations are private. While the Trump administration has yet to announce any postponement, Agriculture Secretary Sonny Perdue said Monday that he believed there will be “some backing away” on a new wave of tariffs that the U.S. business community has been lobbying against.
That sentiment was backed up by U.S. Commerce Secretary Wilbur Ross, who told the Fox Business Network on Tuesday that getting the right deal is more important than whether it comes before or after Dec. 15. “Every day that goes by, we are in a better negotiating position,” he said, adding that most of the tougher issues will be addressed in later phases of negotiations.
Larry Kudlow, the head of the White House National Economic Council, warned Tuesday that the tariff increase remains in play for now, although he said Trump is encouraged by the progress he is seeing in the talks. “The reality is that those tariffs are still on the table,” Kudlow said, though he added that Trump has struck a “constructive and optimistic tone” on China.
The ongoing discussions illustrate the difficulties in reaching an accord that Trump said more than eight weeks ago was basically done and would take three to five weeks to put on paper. U.S. stocks were little changed amid conflicting signals of a trade-war ceasefire.
The “phase-one” deal is expected to be built largely around a significant increase in Chinese agricultural purchases in exchange for a reduction in tariffs by the U.S. Officials have also said it will 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.
Beyond the discussions of tariffs, the most contentious issue in the talks currently is the U.S. insistence that the Chinese commit to a strict schedule for an increase in agricultural purchases that Trump has touted as the biggest component of his phase-one deal. U.S. farmers have been one of the constituencies hit hardest by Trump’s trade war with China with the administration rolling out some US$28 billion in farm aid over the past two years to offset losses due to lost exports of soybeans and other commodities.
The U.S. is wary of China’s history of not living up to its promises to previous administrations and wants to lock the Asian nation into a firm schedule of purchases. China, which is under pressure from other trading partners and has diversified many of its commodity purchases away from the U.S. as a result of the trade war, insists that any buying commitments should be market-based and not conflict with its obligations under World Trade Organization rules.
Officials on both sides continue to insist a deal is in their mutual interest. A tariff reprieve would lift confidence in the global economy and signal that the two sides are determined to push through a deal, despite heightened tension in the past two weeks over non-trade conflicts including the U.S. stance on Hong Kong’s human-rights protests and alleged abuses in China’s Xinjiang province.
But the drift in the talks since the narrow phase-one deal was first announced Oct. 11 by Trump has also highlighted the sensitivity of the discussions on both sides at a time that the broader relationship is deteriorating and hawks on both sides see an existential rivalry developing.
“Both China and the U.S. need it but we need a fair phase-one deal,” former Chinese Commerce Minister Chen Deming told a conference in New York on Tuesday. “If the tariff on Dec. 15 can be postponed, there will be a better chance for a deal. If the tariff is implemented, your ammunition will be used up soon. China will surely retaliate. It will be difficult to negotiate next year.”
Senator Marco Rubio, one of the most vocal China hawks in Congress, said Tuesday that Beijing’s goal to surpass the U.S. as a military and economic power remained a “fundamental challenge” that “will not simply be solved by some future trade agreement.”
“The market may say short-term profits justify adhering to the requirements China places on our companies. But policy makers must take into account that long-term surrendering our productive capacity to China is reckless,” Rubio told an audience at the National Defense University in Washington.
Analysts say the slow progress in the trade talks illustrates that broader suspicion and how the relationship is facing a new reality.
Any delay in the Dec. 15 tariffs without a phase-one deal in place would be “a stark admission that the two sides can’t find agreement on even the narrowest of terms, which stems from both sides believing they occupy the high ground,” said Jude Blanchette, a China expert at the Center for Strategic and International Studies in Washington.
It also is likely to embolden hardliners. “By delaying a final settlement, the increasingly hawkish tone on China in Washington D.C. will narrow the possibility of a politically acceptable trade deal here in the U.S.,” he said.