Skip to main content

U.S. President Donald Trump and China's Xi Jinping were due to meet at this month’s gathering of Asia-Pacific leaders in Chile but that event was cancelled due to protests there.Kevin Lamarque/Reuters

The United States and China have agreed that an initial trade deal between the two countries would roll back a portion of the tariffs placed on each other’s products, a significant step toward defusing tensions between the world’s two largest economies.

The so-called “phase one” agreement has not been finalized, and a deal could fail to materialize as it has in previous rounds of negotiations. But if a pact is reached, the Trump administration has committed to rolling back some tariffs, according to people familiar with the negotiations.

The commitment marks the first time the United States has agreed to remove any of the tariffs it has placed on US$360-billion worth of Chinese goods. While President Donald Trump cancelled a planned tariff increase in October, he has routinely dangled the prospect of additional tariffs if Beijing does not change its economic practices and accede to the United States’ trade terms.

The development suggests the two sides are moving closer to a deal that would provide relief to businesses and consumers that have struggled with the additional costs of tariffs. Mr. Trump and his Chinese counterpart, Xi Jinping, are facing increasing political and economic pressure to resolve their 19-month trade fight, which has inflicted pain on both sides of the Pacific.

Investors have already begun anticipating some type of resolution. Stocks soared Thursday after the Chinese government said Beijing and the Trump administration had agreed to remove some tariffs as part of any deal.

Gao Feng, a spokesman for China’s Commerce Ministry, said at his weekly news conference in Beijing that China was insisting that any deal include tariff reductions and that the U.S. had agreed to remove tariffs as part of an agreement.

“In the past two weeks, the leaders of the two sides have conducted a serious and constructive discussion on properly addressing the concerns of both sides, and agreed to cancel the tariffs by stages in accordance with the development of the agreement,” he said.

Mr. Gao did not specify what tariffs might be dropped, or when.

Last month, Mr. Trump announced he would drop his plan to increase tariffs to 30 per cent on Oct. 15 as part of a first-phase trade deal, but made no mention of the tariffs he had already placed on more than US$360-billion of Chinese products.

Since then, the United States has begun considering rolling back tariffs put in place Sept. 1 on more than US$100-billion of Chinese food, clothing, lawn mowers and other products, according to people briefed on the discussions.

Markets, to which Mr. Trump pays close attention, are increasingly optimistic about the chances for a deal and have been rising steadily. On Wall Street, the S&P 500 closed up 0.27 per cent at 3,085.18, a record high.

Shares of companies with close ties to China’s vast manufacturing base, such as semiconductor manufacturers and retailers, also rose.

Mr. Trump took notice Thursday, saying in a tweet: “Stock market up big today. A New Record. Enjoy!”

While markets are booming, farm and manufacturing states continue to struggle under the weight of Mr. Trump’s trade war, which has included retaliatory tariffs on U.S. goods.

The fight has brought the economies of several farm belt states to a near standstill, data released by the U.S. Commerce Department on Thursday showed. From the middle of 2018 through the middle of this year, growth in Iowa, Kansas and Nebraska slowed to less than 1 per cent for the year, well below the more rapid expansions they had enjoyed in the first half of 2018.

In the second quarter of this year, which ran from April to June, gross domestic product rose by an annual rate of just 1.1 per cent in Wisconsin, Michigan, Iowa, Illinois and Georgia. GDP grew by just 1 per cent in Indiana and Kentucky.

While the Trump administration has insisted that Americans are not bearing the brunt of the tariffs, business and farmer groups disagree.

The lobbying group Tariffs Hurt the Heartland released a report this week that found that U.S. consumers and businesses have paid an additional US$38-billion in tariffs between February, 2018, and September, 2019, as a result of the trade war.

“This data offers concrete proof that tariffs are taxes paid by American businesses, farmers and consumers – not by China,” said Jonathan Gold, spokesman for Americans for Free Trade. “This is why removing tariffs must be a part of the phase one deal.”

The trade war has inflicted pain on both sides. U.S. tariffs now cover more than two-thirds of the products it imports from China, while Chinese tariffs cover 58 per cent of China’s imports from the United States, according to tracking by Chad Bown, a senior fellow at the Peterson Institute of Economics.

The trade war has contributed to a slowdown in China’s economic growth, while economists have increasingly warned of the impact on the United States

Some officials, including top trade negotiator Robert Lighthizer, argued against the imposition of the Sept. 1 tariffs in the first place, and have not been opposed to trading them in return for significant concessions from China, people familiar with their deliberations said.

U.S. officials have emphasized that any deal depends on China taking more aggressive action to protect U.S. intellectual property and that Mr. Trump would make the final determination. If China doesn’t agree to the terms Mr. Trump likes, he could ultimately leave all tariffs in place or only remove a small portion.

Talks are continuing, but it remains unclear when and where the two sides may sign a deal.

Previous plans for Mr. Xi and Mr. Trump to meet on the sidelines of the Asia-Pacific Economic Co-operation summit meeting in Chile in mid-November were also thrown into disarray when the Chilean government cancelled the meeting because of street protests.

Mr. Trump has expressed a preference for a signing in the United States, but locations in Europe and elsewhere have also been considered. Administration officials say that talks are still proceeding under roughly the original timeline, although the signing could be delayed somewhat.

Mr. Gao’s statement that China would insist on cancelling some tariffs was a subtle shift from his previous comments, which were somewhat less specific on what China required for an interim agreement.

“If China and the United States reach the first phase agreement, according to the content of the agreement both sides should cancel added tariffs at the same time with the same proportion,” he said. “This is an important condition for reaching an agreement.”

The news conference Thursday held the first official comments on the trade war since a meeting of the Chinese Communist Party’s Central Committee concluded a week ago, the first such gathering in 20 months. In the past, Beijing’s position has shifted away from compromise after a broader array of Communist Party officials were briefed on progress in the trade talks.

The United States and China were close to a deal in early May. But when the draft agreement was broadly distributed within the Chinese leadership, its contents provoked worries about the extent of China’s concessions. China’s trade negotiators quickly demanded extensive changes in the agreement.