Apparently, the Chinese Commerce ministry was telling the truth when, on November 7, Gao Feng said “top negotiators” on both sides of the trade dispute had “agreed to remove the additional tariffs in phases as progress is made on the agreement”.
Gao’s remarks – delivered at a regular briefing that day – were seen as confirmation of what the market had been expecting since Donald Trump announced the nebulous “Phase One” trade deal during a meeting with Liu He at the White House on October 11.
“If China and the 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”, Gao went on to say earlier this month. The next day, Trump appeared to throw cold water on the tariff rollback news and he’s cast further doubt on the idea of tariff relief in public comments since.
Read more: Trump Casts Further Doubt On Trade Deal, Cites ‘A Lot Of Incorrect Reporting’
Through it all, most market participants found it exceedingly hard to believe that the Chinese Commerce ministry would have been so bold as to announce an agreement in principle of tariff relief (which was subsequently confirmed by unnamed US officials who spoke to multiple media outlets) if the principals (i.e., Bob Lighthizer, Steve Mnuchin and Liu) weren’t in fact discussing it as part of the deal.
On Tuesday, Bloomberg offered one of the most comprehensive accounts yet of what’s going on behind the scenes. That account does indeed entail a vigorous (albeit wholly convoluted) discussion around tariff relief.
“The two sides… are discussing linking the size of tariff rollbacks to the preliminary terms set in [the] failed May deal”, Bloomberg reports, citing people familiar with the talks and adding that Beijing is insisting that all levies slapped on Chinese products after May be lifted as part of “Phase One”.
Trump, you’re reminded, flew off the handle on Sunday, May 5, and announced he would hike the tariff rate on the $250 billion in goods which were taxed at a lower rate from September 24, 2018. That amounted to the White House breaking the Buenos Aires truce, and it promptly sent stocks tumbling on the way to their worst month of the year.
Apparently, some in the Trump administration are pushing for a partial rollback of the levies applied to that $250 billion in goods. There’s scope for the rate to be reduced on that tranche (for example, from 25% back to the original 10%). In October, Trump agreed not to hike the rate from 25% to 30% as threatened.
One has to assume that the September escalation and the planned December tariffs would be lifted and canceled (respectively) before relief on the $250 billion tranche would be considered. That, in turn, means it’s at least possible that Beijing could secure the removal of a substantial portion of the levies applied since the onset of the trade spat.
“US officials have differing views on how much phase one would cover and what portion of the tariffs the Trump administration should agree to roll back”, Bloomberg went on to say Tuesday, noting that “the internal figure under discussion ranges from around 35%… to the 60% that Trump has said the deal encompasses”.
To be clear, the market is just looking to see the December escalation shelved (permanently). Although there’s an expectation that taking that off the table would necessarily mean removing the September tariffs too, the only thing that’s definitely “baked in” (so to speak) is the nixing of next month’s scheduled duties on $160 billion in additional products, most of which are consumer goods. Anything above and beyond that would arguably represent an upside surprise.
Remember, to date the Trump administration has never once truly deescalated things. Any tariff relief would mark the first concrete step in the right direction since things began to spiral out of control some 18 months ago.
(Goldman)
