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By Josh Mitchell
WASHINGTON -- The U.S.-China trade deal would deliver muted benefits to the American economy, leaving in place most tariffs on Chinese goods and uncertainty for the world's two largest economies.
The limited deal, announced by officials in both countries on Friday, would halve a 15% tariff the U.S. slapped on $120 billion worth of Chinese-made goods on Sept. 1, including apparel, shoes and accessories. It would also cancel a 15% tariff on $156 billion of goods -- including smartphones, laptops and toys -- set to take effect Sunday.
U.S. officials said the deal also calls for increasing exports to China by $200 billion over two years, including a big increase in farm exports. U.S. officials envision cutting the trade deficit; helping industries such as agriculture, manufacturing and tech; and boosting overall growth.
"We're hopeful that this is the beginning of leveling the playing field for American workers and businesses," said Cummins Inc., an Indiana manufacturer of diesel engines.
The company said it believed the deal would slash tariffs on lithium-ion batteries it imports from China for electric-powered vehicles. But the deal would leave in place tariffs on many goods the company makes at a plant in China.
Economists said the deal would likely reduce some consumer prices and may reassure businesses the two-year trade dispute is headed toward a broad resolution.
But the deal leaves in place 25% tariffs on $250 billion of goods that went into effect last year, including plastics, chemicals and machinery. Also, since the deal is only "phase one" of longer-term talks, it may only remove some of the business uncertainty that economists and Federal Reserve leaders say has held back the U.S. economy, which is plodding along in its longest expansion ever.
The deal offers hope that trade tensions are easing, but will do little to boost growth, said economist Mary Lovely of the Peterson Institute for International Economics. "Given the size of the U.S. economy I don't think this is going to get any macroeconomists' blood pressure going," she said.
Agricultural traders were skeptical that China would buy as many U.S. farm products as the deal calls for. "They need U.S. pork, they need U.S. soybeans. Do they need $50 billion of agricultural goods? Absolutely not," said Dave Marshall, a farm-marketing adviser with First Choice Commodities Inc. "If the Chinese were to buy $50 billion, they'd have to buy a lot of natural gas."
Nebraska farmer Dan Nerud said tariffs from China and other countries have hit the prices he gets for each bushel of corn and soybeans he raises with his son on about 3,000 acres.
"I'm very, very hopeful," Mr. Nerud said of Friday's deal. "But until we actually see some stuff in writing or agreed to, that's when I'll have the confirmation."
Tyson Foods Inc., the largest U.S. meat processor, said it hoped the deal "leads to improved market access and lower tariffs, which would benefit our meat and poultry businesses and the farmers and ranchers who supply us."
Some economists said the biggest benefit would be heading off Sunday's tariffs, which would have directly hit consumers by driving up the price of popular items including electronics.
The tariffs already in place are set to drive up costs for U.S. households by more than $400 a year, on average, economists say. One estimate says that if Sunday's tariffs went into effect, that tab would have exceeded $550. Reducing the September tariffs and canceling Sunday's tariffs will give households a bit of a respite, said Ms. Lovely.
Households "might not know that they dodged a bullet here," she said.
Consumers are already spending more on certain goods because of the tariffs, the first round of which took effect in 2018, although businesses have absorbed some of the increased costs and U.S. imports from China have dropped.
Bryan Riley of the National Taxpayers Union, a nonprofit research group, said Sunday's tariffs would have hit the poorest households the hardest. "It would be like a reverse Christmas bonus," Mr. Riley said.
The $22 trillion U.S. economy has remained steady despite the dispute and a slowdown in global growth. The Fed on Wednesday projected U.S. output would expand 2.2% this year and 2.0% next year.
But there is evidence the trade slowdown has held the economy back. Business spending on long-term projects -- including facilities and equipment -- rose 1.3% in the third quarter compared with a year earlier, the weakest 12-month gain in three years.
Many economists believe a big reason for the slowdown is uncertainty over the trade dispute. Some companies have been holding off on key decisions -- such as how many people to hire or where to locate a plant -- as they wait for a trade deal.
That uncertainty is one reason the Fed cut its benchmark rate three times this year. Fed Vice Chairman Richard Clarida on Friday said it was too soon to judge how a limited agreement to halt the trade war between the U.S. and China would influence the economy, but he said any reduction in policy uncertainty is "obviously a positive for the economic outlook."
The tentative deal with China and progress on another trade dispute could reduce some of that uncertainty. The U.S. also reached a new trade agreement in recent days with Mexico and Canada, a development that could offer support for the U.S. economy.
But the U.S.-China dispute has been marked by fits and starts and it is entirely possible the talks could yet collapse. President Trump said Friday that the tariffs still in place will be used as leverage in the next phase of talks with China.
Gregory Daco of Oxford Economics raised doubts about how much certainty a "phase one" deal would provide.
"From a business perspective if you know these tariffs can come back you're still going to be cautious about your actions, your investment, your hiring decisions," he said.
--Bob Tita, Kirk Maltais and Jacob Bunge contributed to this article.
Write to Josh Mitchell at firstname.lastname@example.org
(END) Dow Jones Newswires
December 13, 2019 17:43 ET (22:43 GMT)
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