Are the U.S. and China finally signaling a trade truce?
November 12, 2019
- The U.S. and China agreed to roll back tariffs if phase one of a trade deal is signed
- Without a deal, the U.S. will add tariffs on another $156 billion of Chinese imports
- Phase one of a trade agreement could calm economic fears and prevent us from drinking the recession kool-aid
After 18 months, it looks like the U.S. and China are ready to pause additional tariffs on each other and roll back tariffs currently in place, in what would be called Phase 1 of a new trade deal between the world’s two largest economies.
The U.S. is planning to slap tariffs on another $156 billion worth of Chinese imports if phase one of a trade agreement isn’t signed by December 15th. These tariffs would include cell phones, laptops, and some toys that have previously avoided the extra import tax.
Where do we stand currently?
Tariffs on Chinese imports were broken down into four different lists. List one was just $34 billion worth of imports like machinery and metals, but list four is the remainder of all Chinese imports including products that would affect consumers more (phones, toys, and clothing).
As of right now, the U.S. has imposed tariffs on all three lists and half of list four. Plus, original tariffs from 2018 have gone from ten to 30 percent. We’ve already paused tariff increases that were supposed to happen on October 15th and agreed to hold off on a final round of tariffs (known as list 4b) coming in December.
If we can agree to phase one with China, we’ll likely see these tariffs start to decrease.
What would phase one accomplish?
Phase one of a trade deal between the U.S. and China would prevent new tariffs, likely roll back some (or all) of the tariffs already in place, as well as force China to buy more U.S. agricultural products and open their markets to U.S. companies. But most notably, it could calm global fears about a recession.
Just take a look at how stocks and bonds around the globe rise any time we get good news about a potential deal.
As we reported recently, consumer and investor confidence ultimately drives the economic train. When consumers aren’t confident, they buy less goods and services. When investors aren’t confident, they buy less stocks and bonds. When less buying happens across the board, it’s hard for companies to keep adding jobs and raising wages.
A partial deal with China would certainly ease economic fears, and that would help consumer and investor confidence remain strong.
What are we still fighting for?
Tariffs have been a negotiating tactic for the U.S. to achieve its biggest goal: stop China from forcing American companies to transfer technology secrets in exchange for doing business in the country. White House economic adviser Larry Kudlow told reporters we have made enormous progress, and that “agreements on agriculture, financial services and currency were nearly completed.” With that out of the way, we can hopefully clear a path for more long-term intellectual property security in phase two of a trade deal.
It’s unclear whether the Trump administration will agree to roll back tariffs, especially considering they’ve been our strongest negotiating tactic thus far. One thing that’s for certain is that any agreement must include some enforcement mechanism so China would have to pay the consequences if they violate the new deal.
China has signaled a truce before and backed out. Time will tell if they’re serious this time, and we’ll keep you posted as updates come in.