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December 2, 2019

United States, China Continue Work On Limited, Phase One Deal

Top officials from the U.S. and Chinese governments continued negotiations on a limited trade deal last week. As Reuters reported U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin held a phone call last Tuesday with Chinese Vice Premier Liu. China’s Commerce Ministry said the negotiators discussed core issues related to the phase one deal and reached “a common understanding on resolving relevant problems.”

Lighthizer and Mnuchin may soon travel to China in an attempt to make additional progress on the agreement.

According to Politico, an unnamed senior U.S. negotiator said the two countries are “millimeters” away from a pact. That comment followed a remark from President Donald Trump on Tuesday. The president said “We’re in the final throes of a very important deal, I guess you could say one of the most important deals in trade ever.”

As a reminder, the agreement negotiators are working on now is limited. According to Meanwhile, The Wall Street Journal and other news reports it only 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.

It reportedly does not cover more controversial structural policy issues such as industrial policy, forced technology transfer, and state subsidies. The Chinese government also said their agreement to the pact hinges on whether or not the United States removes some of the existing tariffs on Chinese products.

While President Trump said talks between the two sides went “well” last week, referring to ongoing pro-democracy protests, he also cautioned that the U.S. government “want[s] to see it go well in Hong Kong.” Stay tuned to Connecting the Dots for weekly updates on negotiations.