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US and China ‘close to finalising’ parts of interim trade deal

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Via Financial Times

The US and China are “close to finalising some sections” of an interim agreement to ease trade tensions between the two countries, the US trade representative said on Friday.

The comments from Robert Lighthizer followed a phone call between him; Steven Mnuchin, US Treasury secretary; and Liu He, China’s vice-premier. Mr Lighthizer’s office said they had “made headway on specific issues” during the conversation and that negotiations would continue among deputies ahead of another call between the top negotiators in the near future.

The statement from USTR suggests the two countries are on track to strike what Donald Trump has described as a “phase one” deal with China by the time the US president meets with Xi Jinping, his Chinese counterpart, at the Apec summit in Santiago, Chile, next month.

The agreement under discussion is limited as it primarily involves larger purchases of US farm goods by China, along with small concessions from Beijing in the realm of intellectual property and currency. It does not address some of the longstanding sources of trade tension between the two countries, such as cybertheft and industrial subsidies, which are core to China’s economic model.

As the US and China closed in on the smaller deal, Washington agreed to suspend a planned increase in tariffs from 25 per cent to 30 per cent on $250bn of goods, which was due to take effect on October 15. If enough progress is made, Beijing also hopes to see the planned imposition of 15 per cent tariffs on a further $156bn of goods, due to take effect on December 15, deferred or scrapped.

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The progress described by Mr Lighthizer’s office comes a day after Mike Pence, the US vice-president, delivered a wide-ranging speech on America’s relationship with China, in which he said Mr Trump was “optimistic” that an interim deal could be completed.

Mr Pence warned that China had grown increasingly “aggressive and destabilising” over the past year, attacking Beijing on military expansionism, building a surveillance state and restraining religious liberty. He added, however, that the US was not seeking “confrontation” with China nor a decoupling of the two economies, leaving the door open to compromise on the commercial front. 

“America is reaching out our hand to China and we hope that soon Beijing will reach back, this time with deeds not words, and with renewed respect for America,” the vice-president said.

A truce in the US-China trade war will allow Mr Trump some breathing room on the economic front as he grapples with the impeachment inquiry threatening his presidency. However, it could trigger a backlash from China hawks on Capitol Hill and beyond who argue that agreeing to a small deal sends a signal of weakness to Beijing and allows Chinese officials to delay making any changes to a number of policies that Mr Trump has been trying to overhaul. 

While the economic confrontation with Beijing is broadly supported in Congress, it is not particularly popular among US voters. According to a Gallup poll released this week, 45 per cent of Americans thought the China tariffs would make the US economy worse, while only 31 per cent thought they would make the economy better. 

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