US, China putting finishing touches on trade deal

A few kernels of details emerged from trade negotiations between US and Chinese officials in Beijing this week, with continued signs that the two sides are nearing the finish line of a marathon trade conflict.

US Treasury Secretary Steven Mnuchin remained tight-lipped in public comments following two days of meetings, saying only that he and US Trade Representative Robert Lighthizer’s talks with Chinese Vice-Premier Liu He were “productive.”

.@USTradeRep Ambassador Lighthizer and I just concluded productive meetings with China’s Vice Premier Liu He. We will continue our talks in Washington, D.C. next week. pic.twitter.com/Y7vYW72a6e

— Steven Mnuchin (@stevenmnuchin1) May 1, 2019

Reports indicated that the two sides have made progress on the issue of removing the tariffs currently imposed on Chinese goods. Trump administration officials had suggested that keeping tariffs on Chinese imports could be used for enforcement purposes.

But the two sides have agreed to a schedule for removing certain tariffs, Politico reported, citing one source familiar with the text of the agreement. Under the plan, the US would remove 10% tariffs on $200 billion worth of Chinese goods, but keep 25% tariffs on a separate list of $50 billion worth of imports. The tariffs on those items would be removed “quickly,” the source said.

Additionally, in the event of complaints of non-compliance, the US could take unilateral action to re-impose tariffs should bilateral consultations fail to resolve issues. China would, likewise, have the authority to do the same.

The conundrum of enforcing a potential deal has driven some recent skepticism that a deal could be reached, with reports suggesting that it was the last significant hurdle remaining.

While areas of disagreement persist in a variety of areas, the progress this week has heightened expectations that the two sides will agree to a deal, an outcome that has already been largely priced into financial markets.

One reason is that, despite a strong headline growth number released last Friday, some measures of the US economy continue to look weak. That could be one motivation for US President Donald Trump’s renewed calls for monetary stimulus.

As Trump looks ahead to his bid to win re-election in 2020, political observers note that he needs a trade deal to shore up the economy, an issue that polls suggest is his strongest selling point among voters.

While first-quarter exports and inventory numbers helped the US gross domestic product to grow at a pace of 3.2%, business investment – one victim of the trade war with China – continued to fall. Despite the windfall from corporate tax cuts passed last year, multinational companies have held up investment amid trade uncertainty.

Both Mnuchin and White House chief of staff Mick Mulvaney confirmed that a decision on the trade negotiations will likely come next week when talks continue in Washington.

Following next week’s round of negotiations in Washington, Trump administration trade officials will “either recommend to the president we have a deal or make a recommendation that we don’t,” Mnuchin said in a television interview on Monday.

Speaking at a conference earlier this week, Mulvaney agreed with Mnuchin that the talks would not likely drag on much further past next week, though he cautioned the administration does not have deal “fever.”

“I think you’ll, know one way or the other, in the next couple weeks,” he said.