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China Sees U.S. Delaying Dec. 15 Tariff Hike as Talks Drag

Bloomberg logoBloomberg 12/11/2019 Jenny Leonard, Shawn Donnan and Niu Shuping
a group of people in a harbor: After more than a year of the China-US trade war, the two sides appear close to finalising a mini agreement that would be part of a wider deal© Brendan Smialowski After more than a year of the China-US trade war, the two sides appear close to finalising a mini agreement that would be part of a wider deal

(Bloomberg) -- Chinese officials expect President Donald Trump to delay a threatened tariff increase set for Sunday, giving more time to negotiate an interim trade deal that both sides continue to insist is close to fruition despite a series of missed deadlines, according to people familiar with the discussions.

The two sides, staying in almost daily contact, have also come closer to an agreement on scaling back the tariffs already in place. But rather than removing or rolling back existing levies, the focus has been on reducing the rate of the tariffs already in effect, according to officials and other people familiar with the talks.

The Trump administration has so far not sent a clear signal on its willingness to agree to a delay on tariffs set to take effect on Dec. 15 on a list comprising some $160 billion of imports from China including consumer items like smartphones and toys.

“It’s the president’s decision,” White House Trade Adviser Peter Navarro said late Tuesday. “I’ve got no indication that he’s going to do anything other than have a great deal or put the tariffs on.”

That came a day after U.S. Agriculture Secretary Sonny Perdue said that he believed there would be “some backing away” from the new wave of levies. People familiar with the discussions say Trump was expected to meet with his trade team on Thursday as discussions continue over a potential delay.

The U.S. has added a 25% duty on about $250 billion of Chinese products and a 15% levy on another $110 billion of its imports over the course of a 20-month trade war. Discussions now are focused on reducing those rates by as much as half as part of a phase one agreement that would relax tensions and pave the way for further talks.

Asian stocks were mixed and U.S. futures saw a small drop amid concern that the tariff hike on Chinese imports scheduled for Sunday could still go ahead. The onshore yuan weakened to 7.0376 per dollar as of 10:00 a.m. Hong Kong time.

Beijing sees delaying that increase on imported consumer goods as allowing the talks to continue on the unfinished items in phase-one of the accord, two officials said on condition on anonymity because the conversations are private.

U.S. Commerce Secretary Wilbur Ross told the Fox Business Network on Tuesday that getting the right deal was more important than whether it came before or after Dec. 15. “Every day that goes by, we are in a better negotiating position,” he said, adding that most of the tougher issues would be addressed in later phases of negotiations.

Larry Kudlow, the head of the White House National Economic Council, warned Tuesday that the tariff increase remains in play for now, although he said Trump was encouraged by the progress he is seeing in the talks. “The reality is that those tariffs are still on the table,” Kudlow said, though he added that Trump has struck a “constructive and optimistic tone” on China.

Bloomberg Economics: Here’s Why Trump Will Dodge December Tariffs

The ongoing discussions illustrate the difficulties in reaching an accord that Trump said more than eight weeks ago was basically done and would take three to five weeks to put on paper. U.S. stocks were little changed amid conflicting signals of a trade-war ceasefire.

The “phase-one” deal is expected to be built largely around a significant increase in Chinese agricultural purchases in exchange for a reduction in tariffs by the U.S. Officials have also said it will include Chinese commitments to do more to stop intellectual-property theft and an agreement by both sides not to manipulate their currencies. Put off for later discussions are knotty issues such as longstanding U.S. complaints over the vast web of subsidies ranging from cheap electricity to low-cost loans that China has used to build its industrial might.

Beyond the discussions of tariffs, the most contentious issue in the talks currently is the U.S. insistence that the Chinese commit to a strict schedule for an increase in agricultural purchases that Trump has touted as the biggest component of his phase-one deal. U.S. farmers have been one of the constituencies hit hardest by Trump’s trade war with China with the administration rolling out some $28 billion in farm aid over the past two years to offset losses due to lost exports of soybeans and other commodities.

The U.S. is wary of China’s history of not living up to its promises to previous administrations and wants to lock the Asian nation into a firm schedule of purchases. China, which is under pressure from other trading partners and has diversified many of its commodity purchases away from the U.S. as a result of the trade war, insists that any buying commitments should be market-based and not conflict with its obligations under World Trade Organization rules.

a screenshot of a cell phone: Reason to Delay© Bloomberg Reason to Delay

Officials on both sides continue to insist a deal is in their mutual interest. A tariff reprieve would lift confidence in the global economy and signal that the two sides are determined to push through a deal, despite heightened tension in the past two weeks over non-trade conflicts including the U.S. stance on Hong Kong’s human-rights protests and alleged abuses in China’s Xinjiang province.

But the drift in the talks since the narrow phase-one deal was first announced Oct. 11 by Trump has also highlighted the sensitivity of the discussions on both sides at a time that the broader relationship is deteriorating and hawks on both sides see an existential rivalry developing.

“Both China and the U.S. need it but we need a fair phase-one deal,” former Chinese Commerce Minister Chen Deming told a conference in New York on Tuesday. “If the tariff on Dec. 15 can be postponed, there will be a better chance for a deal. If the tariff is implemented, your ammunition will be used up soon. China will surely retaliate. It will be difficult to negotiate next year.”

U.S. Senator Marco Rubio, one of the most vocal China hawks in Congress, said Tuesday that Beijing’s goal to surpass the U.S. as a military and economic power remained a “fundamental challenge” that “will not simply be solved by some future trade agreement.”

“The market may say short-term profits justify adhering to the requirements China places on our companies. But policy makers must take into account that long-term surrendering our productive capacity to China is reckless,” Rubio told an audience at the National Defense University in Washington.

Analysts say the slow progress in the trade talks illustrates that broader suspicion and how the relationship is facing a new reality.

Any delay in the Dec. 15 tariffs without a phase-one deal in place would be “a stark admission that the two sides can’t find agreement on even the narrowest of terms, which stems from both sides believing they occupy the high ground,” said Jude Blanchette, a China expert at the Center for Strategic and International Studies in Washington.

It also is likely to embolden hardliners. “By delaying a final settlement, the increasingly hawkish tone on China in Washington D.C. will narrow the possibility of a politically acceptable trade deal here in the U.S.,” he said.

(Updates with yuan in seventh paragraph. An earlier version of this story corrected ‘and’ to ‘or’ in Navarro quote in 4th paragraph)

--With assistance from Saleha Mohsin and Ye Xie.

To contact the reporters on this story: Jenny Leonard in Washington at jleonard67@bloomberg.net;Shawn Donnan in Washington at sdonnan@bloomberg.net;Niu Shuping in Beijing at nshuping@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Brendan Murray, Ana Monteiro

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

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