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U.S. Suspends New Tariffs, Lowers Others After Reaching “Phase One” Trade Deal With China

Posted December 15, 2019

China and the United States announced on Friday they have reached a “phase one” trade deal that will see Washington suspend new tariffs on roughly $160 billion in Chinese imports that were set to take effect Sunday and lower some existing tariffs, while Beijing has vowed to significantly boost purchases of U.S farm goods and other products.

“We have agreed to a very large Phase One Deal with China,” President Donald Trump stated on Twitter, adding that following months of often testy negotiations Beijing had “agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more.”

The Office of the U.S. Trade Representative said it expects to sign the partial agreement in the first week of January and issued a fact sheet highlighting key points, including enforcement provisions and improved protection for American technology.

Key Features 

Despite shelving plans to impose tariffs that would have hit $160 billion worth of Chinese imports, including big-ticket items like iPhones and laptops, USTR Robert Lighthizer specified that the U.S. would keep 25% tariffs on some $250 billion of Chinese imports, including machinery, electronics and furniture.

Additionally, the White House has agreed to slash the duty rate by half to 7.5% on another $120 billion in imports of a wide range of consumer goods such as jackets, gloves, footwear and flat panel electronic displays.

For its part, Beijing has reportedly committed to buying $32 billion more in farm products over the next two years, or about $16 billion a year, USTR said, on top of a baseline of $24 billion in purchases in 2017—a 66% increase viewed by some as implausible.

Looking to assuage the concerns of other agricultural trading partners including Canada, Beijing stressed that the increased agricultural purchases would comply with World Trade Organization rules. “Expanding China-U.S. trade will not affect interests of other trading partners,” a Chinese official said.

Looking Ahead 

China’s state news agency indicated the two sides are currently working toward wrapping up legal reviews of the as-yet-unreleased 86-page document and expressed hope the new deal “will help the two countries enhance economic and trade cooperation, effectively manage, control and resolve differences, and promote the steady development of bilateral economic and trade relations.”

While characterizing the preliminary deal as a “very, very important step forward,” U.S. officials acknowledged tougher issues lay ahead in future negotiating rounds, including opening up closed Chinese markets, addressing government subsidies of industry, and the enforced transfer of technology if the U.S. is to achieve a fundamental shift in its commercial relationship with China. 

“There are still a lot of outstanding issues that you’re all aware of between the United States and China which are very serious issues,” Lighthizer said in a briefing. “Our sense is we’re better off doing this in phases than to sit and make no progress at all.”

Business groups immediately called for more negotiations on future phases to get under way. “This is an encouraging first phase that puts a floor under further deterioration of the bilateral relationship,” US-China Business Council President Craig Allen said in a statement. “But this is just the beginning. The issues facing the U.S. and China are complex and multi-faceted. They are unlikely to all be resolved quickly.”

Need More Information?

Should you have any questions about how these latest changes to the various Section 301 tariffs currently imposed against Chinese imports may affect your business, don’t hesitate to contact us – our trade experts are here to help.

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