For weeks it’s been apparent that China would demand tariff relief in exchange for Xi’s signature on any interim trade agreement, and it appears Beijing will get just that.
Both sides have agreed to lift tariffs in phases as an agreement between the world’s two largest economy progresses, Commerce Ministry spokesman Gao Feng said Thursday, at a regular briefing. Later, a US official confirmed the plans.
The news comes as a welcome reprieve after Wednesday’s reports that the signing of “Phase One” may be delayed to December and likely won’t take place in the US. That was a wet blanket on US equities and other risk assets Wednesday.
The amount of tariff relief that will accompany the “Phase One” deal hasn’t yet been decided, Gao said Thursday, noting that it will depend on the terms of the agreement.
Of course, the terms of the agreement are at least partially contingent on tariff relief, so this is a bit self-referential.
“In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement”, Gao remarked, adding that “if China, US reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement”.
Again, circular, self-referential, and somewhat silly, but bullish for already ebullient risk assets. US equity futures were sharply higher on the news.
Also on Thursday, Xinhua said China’s General Administration of Customs and Ministry of Agriculture is set to lift curbs on US poultry imports.
Bob Lighthizer, Steve Mnuchin and Chinese Vice Premier Liu He have held at least two phone calls since the face-to-face discussions in Washington last month. Both calls are said to have gone swimmingly, and the market widely expects the Trump administration to take the planned December escalation (15% levies on some $160 billion in Chinese goods) off the table. US officials are reportedly considering lifting the tariffs that were imposed on September 1 as well.
Combining those two tranches into one deescalation would make sense, considering they were once one escalation prior to Trump splitting them on August 13 in order to avoid driving up prices for US consumers ahead of the holiday shopping seasons.
If tariffs are rolled back, it would be the first time Trump has removed any of the duties since the trade war began. We are now just five weeks away from the US president making good on his threat to go “all-in” by taxing everything the US imports from China.
Removing the tariffs would likely give US stocks another strong boost, but would effectively strip Trump of his most powerful lever when it comes to influencing US monetary policy. If the December escalation is taken off the table, and the data continues to come in better than expected, a Fed cut at the December meeting is highly unlikely.
Gao did not provide further details on where “Phase One” might be signed.
From the Global Times (translated)
[Global Times-Global Network Reporter Ni Hao] At the press conference held on November 7, the Ministry of Commerce spokesperson Gao Feng revealed that the leaders of China and the United States have carefully resolved their core concerns in the past two weeks and have carried out serious Constructive discussion, agreeing to cancel the tariff increase in stages with the progress of the agreement.
Gao Feng said that if the two parties (China and the United States) reach the first phase agreement, they should cancel the tariffs according to the content of the agreement and the same rate. This is an important condition for reaching an agreement. Gao Feng said that China’s position on the tariff issue has always been clear and clear. The trade war should start with the addition of tariffs and should also be abolished by the elimination of tariffs. As for the number of cancellations in the first phase, it can be agreed according to the content of the first phase agreement.
Gao believes that the cancellation of the tariffs imposed by the two parties in accordance with the agreement will help stabilize market expectations, benefit the economies of the two countries and the world economy, and benefit producers and consumers.