Stockholm (Ekonamik) – The U.S. and China are reportedly close to a trade deal in which most U.S. tariffs could be lifted, so long as Beijing follows through with pledges to buy a significant amount of American products and ensure better protection of intellectual property rights.
The series of negotiations that have been taking place in recent weeks have ostensibly yielded an atmosphere in which the two sides believe their differences can be resolved. The Wall Street Journal reported that a summit between U.S. President Donald Trump and Chinese President Xi Jinping could take place at Mr Trump’s Florida Mar-a-Lago resort “around March 27” to finalise the deal.
China is offering to lower tariffs on U.S. farm, chemical, auto and other products, according to the WSJ. China would also buy $18 billion in liquefied natural gas from Houston-based Cheniere Energy Inc., and is pledging to speed up the timetable for removing foreign-ownership limitations on auto ventures and reduce tariffs on imported vehicles to below the current rate of 15%.
Mr Trump delayed a planned increase of tariffs on Chinese imports to 25% from 10% scheduled to take effect March 1, perhaps in view of Mr Xi’s need to show progress towards a deal at China’s National People’s Congress, held this week and next. Mr Trump asked last week for all duties to be removed on U.S. agricultural products in return.
A final decision has reportedly not been made and deliberations continue inside the Trump administration, which holds that China needs a deal more than the U.S. Robert Lighthizer, the U.S. Trade Representative in charge of the trade talks, said that it was China’s “desire” to resolve the situation in congressional hearings last week.
One potential stumbling block is whether tariffs would be lifted immediately or over the period of time necessary that would allow the U.S. to monitor whether China is meeting it obligations. The U.S. wants to be in a position to threaten more tariffs as leverage to ensure Chinese compliance, and only lift tariffs fully when it is satisfied that Beijing has implemented all parts of the agreement.
However, removing levies on $200 billion of Chinese goods rapidly will be necessary to finalise any deal from China’s side. The Trump administration slapped on those tariffs after China retaliated against the first U.S. $50 billion in tariffs that launched the trade war last summer.
The U.S. has asked the Chinese not to retaliate or bring WTO cases in response to the tariffs that could be imposed to enforce the deal.
Critics such as economist Paul Krugman suggest Mr Trump similarly wants to declare victory and move on as quickly as possible, comparing his tactics on the trade war to those he employed on the North American Free Trade Agreement, which Mr Trump replaced with the UMSCA agreement, in the end a similar agreement with arguably worse terms that undermine investor confidence.
A new paper by three Princeton economists suggests the trade war has already cost U.S. businesses and consumers close to $20 billion. Business leaders are asking themselves whether the whole protectionist effort was worth it.
Stocks in Europe and Asia advanced on optimism about the deal. The Stoxx Europe 600 Index rose 0.4% and the offshore yuan gained 0.2% upon the news Monday. Positive signs on de-escalation from the Trump administration since the beginning of the year have also contributed to lifting U.S. stocks from their abysmal December performance.
Image: Meeting Between the United States and China on Trade, January 30 2019 (Wikimedia Commons)