U.S.-China Trade Deal, Phase One

The United States and China agreed on the outlines of a partial trade accord Friday, which President Donald Trump said he and his counterpart Xi Jinping could sign as soon as next month.

As part of the deal, China would significantly step up purchases of U.S. agricultural commodities, agree to certain intellectual-property measures, and make concessions related to financial services and currency, Trump said Friday at the White House. In exchange, the U.S. will delay a tariff increase due next week as the deal is finalized, though new levies scheduled for December haven’t yet been called off.

The agreement marks the largest breakthrough in the 18-month trade war that has hurt the economies of both nations. Importantly, Trump said the deal was the first phase of a broader agreement. The president indicated he could sign a deal with Xi at an upcoming November summit in Chile.

While the limited agreement may resolve some short-term issues, several of the thorniest disputes remain outstanding. U.S. goals in the trade war center around accusations of intellectual-property theft, forced technology transfer, and complaints about Chinese industrial subsidies.

Xi told Trump in a letter—which the White House distributed on Friday—that it’s important the countries work together to address each other’s concerns. “I hope the two sides will act in the principle and direction you and I have agreed to, and work to advance China-U.S. relations based on coordination, cooperation, and stability,” the letter said.

Chinese state news agency Xinhua said negotiators made efforts toward a final agreement, but stopped short of calling Friday’s outcome a deal. Hu Xijin, the editor-in-chief of China’s most prominent state-run newspaper, “Global Times,” noted on Twitter that official reports from China didn’t mention Trump’s goal of signing the deal next month, which indicates Beijing wants to keep expectations low.

Phase Two

The Trump administration also said issues related to Huawei Technologies Co. aren’t part of Friday’s deal and will be a separate process. The Chinese telecommunications equipment maker, which was placed on an export blacklist in May, will be discussed in a second phase of the negotiations, the president told reporters later Friday.

Equities advanced globally Friday amid growing conviction that the world’s two biggest economies would negotiate a trade truce, though U.S. stocks pared gains after Trump’s announcement near the close of trading. Trump tweeted earlier Friday that if the countries did reach an agreement, he would be able to sign it without a lengthy congressional approval process.

Trump’s announcement drew a wary welcome from even Republicans on Capitol Hill. “After so much has been sacrificed, Americans will settle for nothing less than a full, enforceable, and fair deal with China,” Senate Finance Committee Chairman Chuck Grassley said in a statement after the announcement. “Farmers in Iowa know far too well that the trade war has caused real financial pain in the heartland. But we need to know more about this deal, and follow-through from China will be key.”

On Thursday and earlier Friday, Liu and U.S. Trade Representative Robert Lighthizer held the first senior-level discussions between Washington and Beijing since a previous agreement fell apart in May and tariffs were raised in the months after.

What Bloomberg Economists Say

“Past experience is that U.S.–China trade agreements aren’t worth the paper they are written on, and this one hasn’t even been written down. For now, though, indications on trade are a little more positive. If that persists, it could help put a floor under sliding global growth.”

— Tom Orlik and Yelena Shulyatyeva, Bloomberg Economics

The U.S. was threatening to increase tariffs on Tuesday on about $250 billion of Chinese imports, from 25 percent to 30 percent. More duties on $160 billion of Chinese products were targeted for Dec. 15.

The threat of those import taxes on U.S. consumers, falling around the holiday season, raised the prospect that the U.S. economy would slide toward a recession heading into Trump’s 2020 re-election bid. The American manufacturing industry, which Trump vowed in 2016 to revitalize, is already contracting, in part because of the trade war.

The Trump administration said that as part of the deal, China would scale up its purchases of U.S. farm goods over two years, to an annual total of $40 billion to $50 billion. Trump encouraged U.S. farmers to buy more land and Deere & Co. tractors in response.

In recent weeks, China had already discussed buying more U.S. products such as soybeans, pork, and wheat. Some traders remained skeptical that buying soybeans from the U.S. represented a significant breakthrough in the overall trade talks, Bloomberg reported Friday.

Earlier Friday, Trump indicated in a Twitter post that if the countries did reach an agreement, he would be able to sign it quickly.

One of the great things about the China Deal is the fact that, for various reasons, we do not have to go through the very long and politically complex Congressional Approval Process. When the deal is fully negotiated, I sign it myself on behalf of our Country. Fast and Clean!  — Donald J. Trump (@realDonaldTrump) October 11, 2019

Senator Ronald Wyden, the ranking Democrat on the Finance Committee that has jurisdiction over trade policy, pushed back on Trump’s tweet in a statement Friday to Bloomberg News: “Donald Trump should know that any meaningful trade deal is only legitimate because of the authority granted to him by Congress, and that authority can be taken away,” he said.

Under the U.S. Constitution, Congress holds power over international trade. For decades, it has legally delegated trade-negotiating authority to the executive branch. Lawmakers in recent months have grown increasingly wary of what they see as Trump’s abuse of that authority and discussed ways to claw it back, citing the president’s many unilateral tariff measures and a lack of transparency in negotiations.

—With assistance from Jennifer Jacobs, Ye Xie, Isis Almeida, Scott Lanman, Sophie Caronello, and Sarah McGregor.

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