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Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases, according to five people familiar with the matter.
Some of President Donald Trump’s top trade advisers in recent days have discussed the plan in preparation for two rounds of face-to-face negotiations with Chinese officials in Washington, due to take place in coming weeks, the people said.
The discussions are preliminary and Trump has yet to sign off on it.
The proposal also would be an interim deal, which would freeze the conflict, rather than bring a final resolution to a trade war that has cast a shadow over the global economy. U.S. stocks advanced on the news.
The plan reflects concerns within the White House over the recent escalation in tariffs and their economic impact on the U.S. going into an election year. Polls show the trade war is not popular with many voters and farmers are increasingly angry over depressed commodity prices.
One of the main goals is to strike a deal that would allow the administration to avoid going ahead with more tariffs in December that would hit consumer products ranging from smartphones to toys and laptop computers. Also in play is a further delay in a tariff-rate hike due to take effect in October.
Late Wednesday, Trump tweeted that he was putting off the 5% increase in tariffs on Chinese goods, originally set to take effect the first day of next month until Oct. 15 -- out of respect for the celebration of the 70th anniversary on Oct. 1 of the revolution that brought the communist government to power.
The office of U.S. Trade Representative Robert Lighthizer did not respond to multiple requests for comment. The Treasury Department also didn’t respond and the White House declined to comment.
Intellectual Property
Exact details of a possible deal, like what specific commodities and how much China will buy and when, still need to be worked out. But the idea is that the deal would include IP commitments that China had agreed to in negotiations in the spring before talks broke down, leading to a summer of escalation.
When those talks fell apart in May the two sides were circulating a 150-page draft agreement at the time and White House officials have repeatedly said they were 90% of the way to securing a deal.
China has insisted throughout the negotiations that any deal would have to see a withdrawal of U.S. tariffs.
It’s not clear if special licenses for Huawei Technologies Co. will be part of the deal, two of the people said, citing congressional worries over national security issues related to the Chinese company. China has made clear throughout the negotiations that it wants the U.S. to remove the company from its export blacklist and denies claims that Huawei was spying for the Chinese government.
In-Person Talks
Chinese trade officials are expected to travel to Washington next week to make progress on the deputy-level before Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to sit down with Chinese Vice Premier Liu He in early October. A firm date has not been set for the ministerial meeting.
If a deal like the one being contemplated comes to fruition during the face-to-face meetings coming up, it could lead to a hold on further U.S. tariffs and an eventual removal of 15% tariffs on $112 billion in Chinese goods that went into effect on Sept. 1.
That would return the status of U.S. tariffs to about $250 billion in Chinese goods and mark the first time the Trump administration has reduced tariffs on China since they were first introduced last year.
The discussions come amid growing evidence that the Chinese, U.S. and global economies are feeling the negative effects of the disputes. Manufacturing sectors around the world have gone into contraction in recent months. There are also signs that the manufacturing jobs gains that Trump has built his case for re-election on are going into reverse in some key industrial swing states.
Trump has insisted publicly that the U.S. is winning his trade war and that he has no choice but to take on a China that for decades has swallowed up whole industries and been blamed for a cratering in manufacturing jobs since it joined the World Trade Organization in 2001.
Behind the scenes some Trump advisers have grown increasingly nervous about the direction of the economy going into the 2020 election. While he has insisted that the U.S. economy is strong, Trump has also called increasingly loudly for the Federal Reserve to take what would normally amount to emergency measures to boost growth.
In a sign of his concern on Wednesday, Trump called for the Fed to follow the path taken by the European Central Bank and to reduce interest rates “down to ZERO, or less’’ and to use that to refinance the U.S.’s sovereign debt.
China, meanwhile, has been pursuing its own efforts to mitigate the damage of the trade wars.
Beijing this week lifted long-standing quotas on foreign investment in its stock and bond markets. It also announced Wednesday that it would exempt some U.S. products from the tariffs it has imposed over the past year but did not lift duties on agriculture goods like soybeans and pork, which are politically-sensitive items for the U.S. president.
The process to exempt certain imports from the duties was aimed mainly at domestic constituencies in China. It is the equivalent of a U.S. mechanism to grant exclusions to U.S. importers for certain Chinese products. Trump on Wednesday nevertheless called the move “a gesture” and said China “did the right thing."
--With assistance from Jordan Fabian, Saleha Mohsin and Jennifer Jacobs.
To contact the reporters on this story: Jenny Leonard in Washington at jleonard67@bloomberg.net;Shawn Donnan in Washington at sdonnan@bloomberg.net
To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Malcolm Scott
©2019 Bloomberg L.P.
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