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Trump to delay new tariffs

February 26, 2019 | Expert Insights

US President Donald Trump said that he wants to make a trade deal with Beijing that will be beneficial for both the countries. He also mentioned that there could be “very big news over the next week or two” if all goes well in negotiations.

Background 

The United States and China are two of the largest economies in the world. Both countries consider the other as a partner in trade and an adversary in geopolitics. Diplomatic relations between the US and China was first established in 1844 with the Treaty of Wanghia. This agreement allowed the US to trade in Chinese ports. After the Qing Dynasty was overthrown, in 1911, the US recognized the legitimacy of the Republic of China (ROC) government.

The U.S.–China Strategic and Economic Dialogue were created in 2009. Every year, high-level representatives from both nations open up dialogue to improve economic partnership. In 2017, the meetings that occurred were reported as being “tense”. Upon conclusion, the two countries cancelled a joint press conference and did not release a statement. They also did not release a plan of action.

US President Donald Trump has previously been a critic of China. He blamed the country for loss of jobs within the US and has often criticized the US trade deficit with China. China's trade surplus with the United States widened in 2017 while total foreign trade volume maintained rapid growth.

The US and China have engaged in a series of bilateral, ministerial-level talks to de-escalate the trade war which has led to the temporary freezing of all new tariffs on both imports and exports until March 1, 2019.

Analysis 

Mr Trump, speaking to US governors at the White House just two hours after saying he would delay a scheduled Friday deadline to raise tariffs on US$200 billion (S$270 billion) worth of Chinese goods, said: “China has been terrific. We want to make a deal that’s great for both countries and that’s really what we’re going to be doing.”

Mr Trump wrote on Twitter: "I am pleased to report that the US has made substantial progress in our trade talks with China on important structural issues including intellectual property protection, technology transfer, agriculture, services, currency, and many other issues."

He also said he would plan a summit meeting with Chinese President Xi Jinping at his Mar-a-Lago estate in Florida to conclude an agreement, assuming both sides make additional progress. That meeting is expected to be held in March.

 "As a result of these very productive talks, I will be delaying the US increase in tariffs now scheduled for March 1. Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement. A very good weekend for US & China!" he said.

The delay in tariffs was the clearest sign yet of a breakthrough the two sides have sought since calling a 90-day truce in a trade war last year.

It will likely be cheered by markets as a sign of an end to the dispute that has disrupted commerce worth hundreds of billions of dollars and slowed global economic growth.

China and the US made “substantial progress” in negotiations in Washington aimed at resolving their trade war, adding that the two sides “made substantial progress on specific issues” such as the transfer of technology, intellectual property protection, non-tariff barriers, the services sector, agriculture and exchange rates.  

The delegations “came a step closer to realising the important consensus reached” by Mr Trump and Mr Xi when they agreed to a trade war truce in December, the report said.

US officials said that talks would extend into the weekend after negotiators produced a deal on currency during talks last week. Negotiators were seeking to iron out differences on changes to China’s treatment of state-owned enterprises, subsidies, forced technology transfers and cyber theft.  

The two sides have been negotiating an enforcement mechanism. Washington wants a strong mechanism to ensure that Chinese reform commitments were followed through to completion, while Beijing insisted on what it called a “fair and objective” process.

Assessment 

Our assessment is that President Trump’s decision to delay the imposition of new tariffs is a sign of real progress in the ongoing talks. We believe that Washington will likely announce an extension of the tariff freeze period to accommodate another series of talks with China.