Trump advisers discuss possible interim trade deal with China

Sources say a limited agreement is being considered ahead of upcoming negotiations

epa07838540 US President Donald J. Trump walks on the South Lawn of the White House upon his return from Baltimore, in Washington, DC, USA, 12 September 2019.  EPA/YURI GRIPAS / POOL
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Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some US tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases, according to five people familiar with the matter.

Some of President Donald Trump’s top trade advisers in recent days have discussed the plan in preparation for two rounds of face-to-face negotiations with Chinese officials in Washington, due to take place in coming weeks, the people said.

The discussions are preliminary and Mr Trump has yet to sign off on it. The president told reporters, in response to a question about the potential for a limited agreement, that he would be open to an interim deal — but would prefer a lasting one.

“A lot of people are talking about, and I see a lot of analysts are saying: an interim deal, meaning we’ll do pieces of it, the easy ones first,” Mr Trump said late Thursday. “But there’s no easy or hard. There’s a deal or there’s not a deal. But it’s something we would consider.”

Asian stocks saw modest gains Friday. Shares in Japan, Australia and Hong Kong pushed higher, with markets in China and South Korea closed for a holiday. The S&P 500 rose to just under its all-time high Thursday after the report.

The proposal would freeze the conflict rather than bring a final resolution to a trade war that has cast a shadow over the global economy. US equities and Asian stock futures advanced after news of the discussions.

The plan reflects concerns within the White House over the recent escalation in tariffs and their economic impact on the US going into an election year. Polls show the trade war is not popular with many voters and farmers are increasingly angry over depressed commodity prices.

One of the main goals is to strike a deal that would allow the administration to avoid going ahead with more tariffs in December that would hit consumer products ranging from smartphones to toys and laptop computers. Also in play is a further delay in a tariff-rate hike due to take effect in October.

Late Wednesday, Mr Trump tweeted that he was putting off the 5 per cent increase in tariffs on Chinese goods, originally set to take effect the first day of next month until October 15 — out of respect for the celebration of the 70th anniversary on October 1 of the founding of the People’s Republic of China.

Exact details of a possible deal, like what specific commodities and how much China will buy and when, still need to be worked out. But the idea is that the deal would include intellectual property commitments that China had agreed to in negotiations in the spring before talks broke down, leading to a summer of escalation.

When those talks fell apart in May the two sides were circulating a 150-page draft agreement and White House officials have repeatedly said they were 90 per cent of the way to securing a deal.

China has insisted throughout the negotiations that any deal would have to see a withdrawal of US tariffs.

It’s not clear if special licenses for Huawei Technologies will be part of the deal, two of the people said, citing congressional worries over national security issues related to the Chinese company. China has made clear throughout the negotiations that it wants the US to remove the company from its export blacklist and denies claims that Huawei was spying for the Chinese government.

Working-level trade teams from the US and China will meet next week, Xinhua reported Thursday, citing Chinese Vice Premier Liu He. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to sit down with Mr Liu in early October.

If a deal like the one being contemplated comes to fruition during the face-to-face meetings coming up, it could lead to a hold on further US tariffs and an eventual removal of 15 per cent tariffs on $112 billion (Dh411bn) in Chinese goods that went into effect on September 1.

That would return the status of US tariffs to about $250bn in Chinese goods and mark the first time the Trump administration has reduced tariffs on China since they were introduced last year.

The discussions come amid growing evidence that the Chinese, US and global economies are feeling the negative effects of the dispute. Manufacturing sectors around the world have gone into contraction in recent months.

While Mr Trump has insisted that the US economy is strong, he has also called increasingly loudly for the Federal Reserve to take what would normally amount to emergency measures to boost growth.

In a sign of his concern on Wednesday, Mr Trump called for the Fed to follow the path taken by the European Central Bank and to reduce interest rates “down to ZERO, or less” and to use that to refinance the US’s sovereign debt.

China, meanwhile, has been pursuing its own efforts to mitigate the damage of the trade wars.

Beijing this week lifted long-standing quotas on foreign investment in its stock and bond markets. It also announced Wednesday that it would exempt some US products from the tariffs it has imposed over the past year.

The process to exempt certain imports from the duties was aimed mainly at domestic constituencies in China. It is the equivalent of a US mechanism to grant exclusions to US importers for certain Chinese products. Mr Trump on Wednesday nevertheless called the move “a gesture” and said China “did the right thing”.