What is the tentative trade deal between the U.S. and China, exactly?
Currently there’s a truce on the table, but now it looks like a “been there, done that” scenario that potentially is not unlike what happened back in June.
Skimpy on details, the only certainties in the “phase one agreement” that President Trump called “very substantial” on Friday are China’s agreement to buy more U.S. agricultural products and the suspension of a planned Oct. 15 tariff increase on $150 billion in Chinese imports that would have raised the duty to 30 percent from 25 percent.
Those items from Tranches 1, 2 and 3 include handbags, among other items, but not apparel. The 10 percent tariffs imposed on Sept. 1 on part of Tranche 4 items imported from China that do include apparel and footwear see no change, and so far the balance of Tranche 4 imports remain under a tariff threat set to take effect on Dec. 15 at 15 percent.
The Tranche 4 group heavily impacts consumer goods categories.
But for an agreement that Trump has deemed “very substantial,” the so-called deal also offers no details concerning a key stumbling block to an actual trade agreement: the U.S. push for protection of American intellectual property assets and how China plans to address those concerns.
Trump and Chinese president Xi Jinping are expected to meet—but not yet confirmed—on Nov. 16 -17 at the APEC Summit in Santiago, Chile, where they supposedly will hammer out or finalize details to the phase one agreement. What that actually means is unclear, because no one knows whether there’s even a rough outline of a partial deal in place with the promise of more to come, if it’s just an agreement to meet, or if something else entirely, according to Cowen & Co.’s WRG Washington strategist Chris Krueger.
And despite Trump’s claim on Friday that there’s a “phase one agreement,” Chinese media is suggesting that certain items—such as the claim of large purchase increases of agricultural products—are aspirational in nature and not reflective of anything that’s been negotiated. As Krueger noted, those promises of additional purchases are “dependent on talks going well in the coming months” and provided there’s a firm agreement that gets inked between the two countries.
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UBS economist Tao Wang in Hong Kong said Monday that while the two sides could “paper” the agreement reached so they could then move on to phase two of the negotiations, it remains “highly uncertain” whether the two countries could actually reach a full trade agreement.
“Given the recent multiple rounds of escalations and that the planned December tariff hike has not been suspended, it is unclear how long the ‘phase one’ agreement might last and what incentives or mechanisms could help ensure both sides hold up to their part of the deal,” the economist said.
UBS economist Robert Martin, Wang’s counterpart in the U.S., said of the “agreement in principle:” “The absence of concrete details and a joint statement of the two sides following the meeting further tamp down our expectations of future talks.”
Another concern is how the “agreement in principle” gets drafted as the parties could disagree on the wording and talks could break off again.
Michael D. Zezas, Morgan Stanley strategist on U.S. public policy, said there’s been some ambiguity over the path forward on the three phases of the trade talks.
“U.S. officials noted that an agreement was still undrafted, that Chinese officials still had to sell the deal back home, and the planned December tariffs were not taken off the table,” Zezas said. “It’s worth noting that in a similar meeting last spring, the U.S. president noted a deal signing was weeks away, but the language drafting process ended with fresh tariffs.”