The US Has Reached a Trade Deal "In Principle" with China

Saturday, 14 Dec, 2019

The US has been pushing for Beijing to commit to buy $50 billion in agricultural products in 2020, after Trump said during an 11 October press conference the two countries had agreed to a "Phase one" trade deal that included a "purchase of from $40 (billion) to $50 billion worth of agricultural products".

The yuan also rallied to its strongest levels in four months on optimism about the potential for trade to improve with the removal of some tariffs.

The Trump administration has so far imposed punitive tariffs of up to 25 percent on around $360 billion of Chinese goods in an effort to address alleged intellectual property and technology theft by Chinese companies as well as to reduce the chronic US trade deficit with China.

In its piece, WSJ had suggested that the USA had offered to cut tariffs on some $360 billion in Chinese goods in half and to cancel import duties on $156 billion in goods which the United States had planned to impose on Sunday.

"The tariffs will largely remain - 25% on $250 billion - and we'll use them for future negotiations on the Phase Two deal", Trump told reporters.

The so-called phase one deal will see billions of dollars in tariffs removed or delayed.

Major US stock indexes jumped following news of the deal in principle.

Wang did not confirm those figures and said they would be released at another occasion.

The agreement Friday covers intellectual property, technology transfer, agriculture, financial services, currency, and foreign exchange, the United States Trade Representative said in a statement.

Beijing's muted response earlier on Friday had raised questions about whether an agreement had been reached.

Instead, he took the occasion to criticise the U.S. for having "seriously damaged the hard-won mutual trust" between the two countries. "As far as China is concerned, what we are pursuing is our justified rights of development".

Trump's promise of a deal overhauling trade with China has languished for most of his presidency, as he toggled between negotiating an "epic" deal and punishing Beijing with tariffs. "This is a delicate situation".

Derek Scissors, a China analyst at the American Enterprise Institute who has regular contact with administration officials, said, "A cut in tariff rates was offered to the Chinese last week, but their original reaction wasn't considered sufficient by the U.S".

As the US enters an election year, companies should have little reason to worry the threat of additional tariffs will reappear in 2020, according to Ian Bremmer, president of Eurasia Group. That so-called Phase One accord would leave numerous more thorny issues - such as Chinese subsidies - to be dealt with in later agreements.

But Republicans praised President Trump for persistence in holding Beijing accountable on trade. Official Chinese state media has yet to comment on the news. China has accused the U.S. of instigating the protests. This idea is also portrayed by spot USD/CNH price action.

Repeated rounds of negotiations had failed to achieve even a preliminary agreement. This decline also makes a big increase in corn purchases hard to implement, they said.