Via Financial Times

Steven Mnuchin, the US Treasury secretary, has warned that a new round of tariffs set for December 15 on $156bn of Chinese goods would be triggered if Beijing failed to seal the limited deal tentatively struck with Donald Trump last week. 

Mr Mnuchin’s remarks in an interview with CNBC on Monday highlighted the fragility of the truce reached on Friday in the US-China trade war, despite Mr Trump’s declaration that a “love fest” was suddenly at hand between the world’s two largest economies. 

“As can already be seen, this latest pause in escalation will not result in a calm, steady process going forward,” analysts at Beacon Policy Advisors wrote in a note.

While Mr Trump hailed the settlement reached on Friday after Liu He, China’s vice-premier, spent two days in Washington negotiating with top US officials, Chinese officials have been more cautious about the outcome, merely pointing to progress between the countries. 

The limited deal outlined on Friday involves the US holding off on raising tariffs from 25 per cent to 30 per cent on $250bn of Chinese goods, which was due to take effect on Tuesday. In exchange, China agreed to boost agricultural purchases and make some limited concessions on access to its financial markets and curbs on intellectual property theft. But there was no joint statement or text. 

Mr Trump said it would take up to five weeks to complete the “phase one” deal, roughly in time for him to meet Xi Jinping, China’s president, at the Apec summit in Chile in mid-November. 

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Mr Mnuchin’s explicit warning that further tariffs could be in store in December raises the stakes for the talks that will unfold in the coming weeks.

“I have every expectation if there’s not a deal those tariffs will go in place, but I expect we’ll have a deal,” Mr Mnuchin said. “We have a fundamental agreement, it is subject to documentation, and there’s a lot of work to be done on that front,” he added. 

Even if it is completed, the deal would be limited because it would fail to address many of the biggest sticking points in US-China economic relations at the root of the trade war, such as industrial subsidies and cybertheft. In addition, it would not disturb US tariffs on $360bn of Chinese goods that have been put in place so far by the Trump administration, so the relief for business would be small.

Some analysts said the move towards de-escalation, after dramatic and aggressive moves to ramp up trade tensions over the past 10 weeks, should not be underestimated. 

“The shift in Trump’s attitude is very significant in an administration where the president’s feelings are more important than the substantive issues in front of negotiators,” Andy Rothman, investment strategist at Matthews Asia said. “I’m optimistic that a formal deal can be concluded next month. That would create the opportunity for reducing bilateral tensions across a wide range of issues, from technology to investment”.

On at least two previous occasions, US and Chinese officials emerged from trade ceasefires with different interpretations of the terms of the settlement. After a truce struck at the G20 summit in Buenos Aires last December, markets sold off sharply as officials sent contradictory signals about the next steps in the talks. Similarly, after this year’s G20 summit in Osaka, the US was expecting a quick move by China to boost farm purchases, but tensions spiked in August after that failed to materialise.

On Sunday night, Mr Trump suggested in a tweet that the US was counting on China following through on its commitments, even before any signing summit next month: “My deal with China is that they will IMMEDIATELY start buying very large quantities of our Agricultural Product, not wait until the deal is signed over the next 3 or 4 weeks. THEY HAVE ALREADY STARTED!” 

In his CNBC interview, Mr Mnuchin laid out the next steps in the talks, saying deputy-level officials would be holding a call this week, to be followed next week by a call between himself and Robert Lighthizer, the US trade representative, and Mr Liu.

Mr Mnuchin added that deputy-level officials would probably meet in person afterwards, and that he and Mr Lighthizer would gather in Chile with Mr Liu ahead of the two presidents’ meeting. Mr Mnuchin added that any deal would include an enforcement mechanism to ensure it would be respected — a feature that has been discussed for months by the two sides. 

“Both sides have absolutely agreed to that there needs to be a dispute resolution and that it needs to have real enforcement mechanisms. It’s something we’ve talked about extensively, and I expect that the agreement we signed does have a dispute and enforcement provision,” Mr Mnuchin said.