U.S., China Agree to Limited Deal to Halt Trade War

Date : 12/14/2019 @ 5:28PM
Source : Dow Jones News

U.S., China Agree to Limited Deal to Halt Trade War

By William Mauldin, Lingling Wei and Alex Leary 

Details emerged Friday from the U.S.'s first-stage trade deal with China, which marked a milestone in President Trump's initiative to rebalance trade with Beijing but left questions over how far it goes to level the playing field for U.S. businesses.

The limited agreement, capping months of sometimes-testy negotiations, calls for China to purchase more products from American farmers and other exports, U.S. officials said. In return, the U.S. put the brakes on new tariffs set to take effect Sunday and agreed to reduce some existing levies. Both sides termed it a "phase one" deal and said negotiations would continue on remaining issues.

Mr. Trump called the deal "phenomenal" and told reporters in the Oval Office that the U.S. would continue to use the remaining tariffs as leverage in future negotiations with China.

"I say affectionately that the farmers are going to have to go out and buy much larger tractors because it means a lot of business, a tremendous amount of business," Mr. Trump said.

But doubts remained, with some critics claiming the deal amounted to little more than China agreeing to step up U.S. farm purchases and not make the kind of long-term economic changes that U.S. officials have said are needed to level the playing field for businesses.

"He has sold out for a temporary and unreliable promise from China to purchase some soybeans," Senate Democratic leader Chuck Schumer of New York said.

Others said that even with the limitations, the phase-one deal marked a significant turning point in U.S.-China relations.

"This doesn't solve all of our problems," said Clete Willems, a former Trump administration economic official and current partner at law firm Akin, Gump, Strauss, Hauer & Feld LLP. "But it is very important for the U.S. and China to be able to say 'yes' to each other on some things."

As part of the deal, the U.S. canceled plans to impose fresh tariffs on $156 billion in annual imports of Chinese-made goods -- including smartphones, toys and consumer electronics -- that were set to go into effect Sunday. The U.S. will also slash the tariff rate in half on roughly $120 billion of goods affected on Sept. 1, from 15% to 7.5%.

U.S. tariffs of 25% would remain on roughly $250 billion in Chinese goods, including machinery, electronics and furniture. In exchange, officials in Washington said China agreed to increase American agricultural purchases by $32 billion over previous levels over the next two years.

That would increase total farm-product purchases to $40 billion a year, with China working to raise it to $50 billion a year, U.S. Trade Representative Robert Lighthizer told reporters at the White House. The farm purchases would be part of total additional exports of $200 billion over two years, said Mr. Lighthizer, who didn't provide specifics.

Mr. Lighthizer also said China made specific commitments on intellectual property, including counterfeiting, patent and trademark issues and pharmaceutical rights, as well as on preventing the forced transfer of technology from firms entering the Chinese market. He and Chinese Vice Premier Liu He are expected to sign the deal in early January, with the pact entering into force 30 days later, Mr. Lighthizer said.

While he portrayed the first phase as a crucial step, Mr. Lighthizer acknowledged tougher issues lay ahead in future negotiating rounds, including opening up closed Chinese markets, if the U.S. is to achieve a fundamental shift in the trade relationship with China.

Neither government submitted a full text or even a detailed summary of the deal, hamstringing efforts to determine the winners and losers in the world's two biggest economiesor the quality of the agreement.

U.S. stock markets ended the day slightly higher, with some analysts saying they were awaiting more details on the specifics.

"The devil remains in the details," Bankrate.com senior economic analyst Mark Hamrick said. "We await further word on purported aspects of the agreement including purchases of U.S. farm goods, intellectual property protections, technology transfers and access to China's financial sector."

Mr. Lighthizer declined to specify when the two countries would begin active negotiations on phase two, where U.S. negotiators are likely to seek further progress on knottier issues such as Chinese pressure on American businesses to share technology and Beijing's subsidies to domestic companies.

Chinese negotiators struck a more cautious tone. At a hastily arranged press conference at the main propaganda department in central Beijing, senior Chinese economy officials didn't disclose much detail, except to confirm that both sides had reached an agreement in principle.

Vice Commerce Minister Wang Shouwen, one of China's lead negotiators, said the U.S. had agreed to remove the remaining tariffs on Chinese products "in stages." Mr. Lighthizer said there was no such agreement on that, and suggested China believes further reductions could be negotiated in later phases of the deal.

Trade experts briefed by officials had expected the U.S. to eliminate the tariffs imposed on retail goods on Sept. 1 or roll back more tranches of tariffs, rather than merely halving the September tariff rates.

As recently as a week or so ago, U.S. negotiators presented their Chinese counterparts a bigger proposal that would have required Beijing to commit to massive purchases of farm and other products, The Wall Street Journal reported on Thursday. In exchange, Washington would have slashed by as much as half the tariff rates on about $360 billion of Chinese imports, in addition to canceling the levies that were planned for Sunday.

But the Chinese negotiators, led by Mr. Liu, President Xi Jinping's point man on U.S. trade, balked at guaranteeing the purchases for fear that such managed trade could violate the rules of the World Trade Organization and cause friction between China andits other trading partners.

In his briefing with reporters Friday, Mr. Lighthizer disputed that a broader tariff cut as described by the Journal had been under discussion.

Still, questions about the deal persisted.

"China has yet to confirm this pledge or provide any details on how they will meet it," said Brian Kuehl co-executive director of Farmers for Free Trade, which backs removing tariffs and opening markets. "There are rightfully many doubts about the president's claim that China will purchase $50 billion in ag products in a single year -- more than twice the level of pre-trade war annual purchases."

At Friday's briefing, Ning Jizhe, a top deputy of the National Development and Reform Commission, hewed to the position Beijing has maintained throughout the negotiations: "Expanding trade cooperation must be based on market principles and WTO rules."

That emphasis raised questions about whether China committed to any big purchases of U.S. products at all, according to industry experts tracking the talks. In addition, they said, the fact that the U.S. only agreed to modest tariff reliefs as part of the phase-one deal also shows that the purchases Beijing agreed could be less than originally sought by Mr. Trump.

Chinese officials, declining to specify how much China expects to buy from the U.S. as part of the near-term deal, also said the U.S. had agreed to increase its imports of Chinese agricultural products.

The trade battle has been dragging on for nearly two years. The Trump administration initially sought a sweeping deal from Beijing with the goal of getting the Chinese leadership to address a range of issues such as the vast bilateral trade imbalance, Chinese pressure on U.S. firms to share technology and Beijing's subsidies to domestic firms.

A near-agreement between the two sides collapsed in early May after Beijing made substantial changes to the draft text that China's leadership saw as too lopsided in Washington's favor.

The trade war then intensified with both governments hitting each other with fresh tariffs. In recent months, Mr. Trump and Mr. Xi both came under economic and political pressure to ease the trade tensions. Betting on the U.S. president's need to prop up the economy and markets in the run-up to his re-election bid next year, Mr. Xi's team proposed what it had sought for a while: carrying out the negotiations in stages.

The Trump administration accepted that approach when a new truce was declared in the Oval Office in October.

Since then, discussions between the two sides have focused on how to get China to beef up its purchases of American farm products. Such a move would benefit Mr. Trump's key supporters in rural states as the 2020 campaign season gets under way.

Thornier issues involving Chinese subsidies of industry and forced technology transfer has largely been left for future discussions. Many in the U.S. business community remain skeptical that those talks could bear any fruit. Mr. Trump said Friday he had planned to start negotiations on phase two of the deal after the 2020 U.S. presidential election, but China wanted to start the talks sooner.

Asked when the two sides will start those discussions, Liao Min, China's Vice Finance Minister and a trusted aide to Mr. Liu, the chief negotiator, said: "The urgent task right now is to get the phase-one agreement signed and implemented."

--Andrew Restuccia, Tim Puko and Chao Deng contributed to this article.

Write to William Mauldin at william.mauldin@wsj.com, Lingling Wei at lingling.wei@wsj.com and Alex Leary at alex.leary@wsj.com

 

(END) Dow Jones Newswires

December 14, 2019 12:13 ET (17:13 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.


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