After nearly two years of trade war marked by rounds of talks, truces and tariff escalations, the United States and China agreed Oct. 11 to work toward a so-called phase one trade deal. Over the past month, both sides have made some conciliatory gestures, increasing the likelihood of an interim deal, though unresolved long-term issues mean their great power competition will continue.
Signs of progress in the month since the United States and China initially agreed to try to negotiate a phase one deal have emerged. The United States is looking for a possible venue for bilateral trade talks, and Chinese and U.S. officials agreed Nov. 7 to a phased removal of existing tariffs in a phase one deal. Chinese President Xi Jinping and U.S. President Donald Trump must still sign off on the deal. If the United States and China do reach a phase one deal, then the alternating cycles of escalation and truces in the trade war could change — though deeper issues that divide the two mean their rivalry will persist.
What It Means
The Nov. 7 developments follow a series of conciliatory gestures between the two sides in recent weeks. These include a resumption of some Chinese imports of U.S. farm products and moves by Beijing — which it did its best to trumpet — to partially satisfy U.S. demands to open its financial markets and crack down on the export of fentanyl. For its part, the United States hinted it will grant a license to American suppliers to keep supplying Huawei after the company was put on the U.S. Entity List in May.
If Washington feels it can still afford to hold out on a deal, the deal might still fall through.
The scope of the proposed tariff easing remains undisclosed, but it could see at least some or all tariffs rolled back on $112 billion in Chinese imports — such as clothing, appliances and food — tariffed Sept. 1 at a 15 percent rate. The prospective deal is also expected to halt additional tariffs scheduled to be introduced Dec. 15 on roughly $160 billion in consumer goods. Based on talks in October, it would also include $40 billion to $50 billion in Chinese purchases of U.S. agricultural goods and certain currency measures and expanded protections for intellectual property in China demanded by the United States.
Chinese negotiators have taken a tough position in recent weeks on the inclusion of phased tariff removal, making it one of three conditions for a trade deal to be acceptable to China. By agreeing to a rollback, however, Washington may expect more from Beijing to secure a deal than China has currently offered, especially since the decision has drawn fierce opposition inside and outside of the White House. So if Washington feels it can still afford to hold out on a deal, the deal might still fall through. Complicating matters, uncertainties over the timeline and location for Trump and Xi to meet and sign the deal remain after Chile canceled its hosting of the Nov. 15-16 Asia-Pacific Economic Cooperation.
In the short run, the 2020 U.S. presidential election is giving Trump increased urgency for a narrow, preliminary deal to succeed to satisfy his constituents, making the United States less likely to call off the deal in response to slow progress in post-phase one negotiations. An escalation of tit-for-tat tariffs is only likely should issues over the implementation of the phase one deal arise. In the long run, however, many of the broader structural issues that divide the United States and China will remain unresolved by a phase one deal — meaning the United States will continue to restrict certain Chinese companies from accessing U.S. markets or technology.