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October 14, 2019

U.S. China Agree To “Substantial Phase 1” Trade Deal

Officials from the United States and China announced last Friday afternoon that the two countries had verbally reached a “substantial Phase 1” trade deal.

While neither the White House nor the Office of the U.S. Trade Representative issued a press statement or fact sheet about the deal, U.S. President Donald Trump and Chinese Vice Premier and lead negotiator Liu He discussed the agreement in a press conference. President Trump noted the deal still must be committed to paper, and would be over the course of the next several weeks, hopefully before upcoming Asia-Pacific Economic Cooperation (APEC) meetings in Santiago, Chile from November 13-14, 2019.

On Monday, Chinese officials reportedly said they wand additional discussions as soon as the end of October to hammer out the details of the deal. On possibility is that the Chinese government will delegation led by Vice Premier Liu to finalize a written deal that could be signed by the presidents at the APEC summit.

Meanwhile, The Wall Street Journal and other news reports indicate the agreement includes:

  • Commitments on a limited set of U.S. policy priorities, including intellectual property protection and technology transfer.
  • An agreement on currency policy modeled after Chapter 33 in the United States-Canada-Mexico Agreement, which includes commitments for Canada and Mexico to follow market-oriented exchange rate policies and improve transparency, with clear consultation and dispute mechanisms if those commitments are not met. U.S. Treasury Secretary Steve Mnuchin explained that, as part of this provision, the U.S. Department of the Treasury would reconsider its recent decision to designate China a currency manipulator.
  • S. commitments to delay, but not cancel, existing plans to further elevate tariffs on Chinese goods, including a planned increase in tariff rates on October 15, 2019 from 25 percent to 30 percent for $250 billion in Chinese goods. Existing tariffs remain in place and 15 percent tariffs are still scheduled to be imposed on $156 billion of Chinese imports on December 15.
  • An agreement by China to purchase $40-$50 billion in U.S. agricultural goods.

This Phase 1 agreement reportedly does not cover more controversial structural policy issues such as industrial policy, forced technology transfer, and state subsidies. And Secretary Mnuchin warned that while there is “fundamental understanding on the key issues … there is more work to do … We will not sign an agreement unless we get and can tell the president that this is on paper.”

Regarding enforcement, President Trump said the two sides are “very close” to an agreement. As part of the Phase 1 agreement, the two sides also agreed to continue negotiations to reach a broader, more ambitious deal ahead of a potential summit between President Trump and Chinese President Xi Jinping on the sidelines of the APEC Leaders’ Summit next month.

President Trump also raised the possibility of a third phase of negotiations at some point. As always, stayed tuned to Connecting the Dots for updates on these ongoing negotiations.