Tariff Tango: Stepping Towards a Trade Truce

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The US and China look to be stepping, tentatively, towards a trade truce.  Negotiations on October 11 resulted in what is realistically more of an easing of tensions than an end to the 18-month long trade war between the two nations.


In the latest round of trade talks, the US has agreed to shelve planned tariff increases on Chinese exports next week while China would buy $40 billion to $50 billion worth of US agricultural products.


The interim trade pact comes as both China and the US facing mounting pressures to end the fight that is putting economic pressure on both domestic and world economies.


The deal still needs to be ratified, which could happen during the Asia-Pacific Economic Cooperation summit in Chile next month.


Mr. Trump has been quoted in many media sources as saying that size of a US-China trade deal would be so big that “doing it in sections and phases is really better.”


Need to Know:  In the Oct 11 trade truce the US agreed to suspend an increase in tariffs on $250 billion of Chinese imports, from 25% to 30%, due to take effect on Oct 15.

  • The US did not agree to roll back any of the existing tariffs, including the 15% tariff on $110 billion in goods that came into effect last month.

  • The US also kept alive the threat to implement 15% tariffs on additional categories of Chinese goods on December 15.


Key Commentary

  • “It’s pretty clear that the U.S. and China have fought this trade war to a stalemate,” said Edward Alden, a senior fellow at the Council on Foreign Relations. “At the moment, neither side sees any real advantage in escalation. The president wants an off-ramp for electoral reasons, and I think the Chinese want an off-ramp primarily for economic reasons.”  (New York Times)

  • Eswar Prasad, a professor of trade policy at Cornell University and a senior fellow at the Brookings Institution, said the agreement will defer new sanctions but do little to resolve the major underlying sources of friction between the two countries.  (New York Times)

  • A substantial number of thorny issues remain, high among them the state-owned companies that are so dominant in the Chinese economy, industrial subsidies and practices like joint partnerships, and bans and limits imposed by the US on firms that are leaders in technology.  (SCMP)

  • “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)

  • Commenting on the Oct 11 trade negotiations, Chinese news agency Xinhua said,  “some people want to politicize trade and economic issues. Finding a solution to trade and economic issues that is acceptable to both countries could be a long process.”



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