Via Financial Times

The US and China reached a truce in their trade war on Friday after Washington agreed a limited deal that will see the US hold off on tariff increases next week in exchange for some Chinese concessions, primarily on agricultural purchases. 

The tentative agreement — described by Donald Trump, the US president, as a “substantial phase one deal” — will offer some respite to the global economy and could calm markets unnerved by escalating tensions between the countries. 

However, it would not represent the sweeping reset in US-China economic relations that Mr Trump has sought from his early days in the White House, and on the 2016 presidential campaign trail. 

US and Chinese officials are expected to finalise the text of the limited agreement in the next five weeks, ahead of a possible summit between Mr Trump and Xi Jinping, China’s president, at the Apec leaders’ meeting in Chile next month

Trump administration officials offered only limited accommodations on levies. They agreed to suspend an increase in tariffs on $250bn of Chinese imports, from 25 per cent to 30 per cent, which was due to take effect on Tuesday.

However, they did not roll back any of the existing tariffs on Chinese goods they have imposed since the start of the trade war in early 2018, including 15 per cent levies on a further $110bn of goods that took effect in September. They are also keeping alive the threat of 15 per cent tariffs on a new batch of Chinese goods, including many consumer products, on December 15.

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Chinese concessions were also relatively minor — essentially repackaging existing pledges made over the course of multiple rounds of talks.

Beijing has agreed to some additional purchases of farm goods, particularly soyabeans and pork, and new measures on intellectual property, currency and financial services. But it has been unwilling to offer any big changes to its industrial subsidies and other practices that have long frustrated US officials and companies. There did not appear to be any mechanism to enforce the deal. 

Mr Trump had stoked confidence in a truce with a series of tweets as the negotiations unfolded. “Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days. I will be meeting with the Vice Premier today. All would like to see something significant happen!” he wrote on Friday morning.

US stocks rallied throughout the day before easing before the closing bell in New York. The S&P 500 ended the day 1.1 higher after rising 1.9 per cent in morning trading. The yield on the 10-year US Treasury rose 7 basis points to 1.738 per cent.

“If you think globally about three of the huge policy uncertainties this year it has been US-China trade, Fed policy and Brexit — we’ve gotten friendly news on each today,” said David Donabedian, chief investment officer of CIBC US Private Wealth Management.

Jeffrey Gundlach, chief executive of fund manager DoubleLine Capital, said the rally in stocks was driven by the positive news on a deal between the EU and UK and the Fed’s announcement. “The trade deal looks to be more cosmetic than real,” Mr Gundlach said.

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When asked to comment on the optimism in the markets about the prospects for a deal earlier on Friday, Steven Mnuchin, the US Treasury secretary, responded: “The stock market is always right”. Mr Mnuchin said the US was considering rescinding its declaration that China was a currency manipulator as part of the deal. 

Mr Mnuchin and Robert Lighthizer, the US trade representative, negotiated the truce with Liu He, China’s vice-premier.

Critics worried that the agreement would be too limited to remove all the uncertainty hanging over the US-China relationship. 

“It’s an escape hatch on tariffs, and a win for the farmers, but in terms of substantive benefits to the US economy and rebalancing the trade relationship, it’s a zero,” said one person briefed on the negotiations. 

Additional reporting by Peter Wells in New York