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Goldman Sachs takes a look at what a US-China trade deal might look like

CNBC logo CNBC 3/4/2019 Weizhen Tan
a group of people sitting at a table: China's Vice Premier Liu He (3rd L) speaks during a meeting with US President Donald Trump in the Oval Office of the White House in Washington, DC on February 22, 2019.© Provided by CNBC LLC China's Vice Premier Liu He (3rd L) speaks during a meeting with US President Donald Trump in the Oval Office of the White House in Washington, DC on February 22, 2019.

The United States and China appear more likely to reach some sort of trade agreement during an expected meeting between their two presidents later this month — but some tariffs would most probably be kept in place, predicted Goldman Sachs in a report on Monday.

"Our base case is that an agreement would leave some US tariffs in place, potentially lifting them in stages as various commitments under the agreement have been met. We nevertheless expect some US tariffs to remain in place into 2020," the U.S. investment bank wrote in the report.

Goldman Sachs said that trade tensions between the two economic powerhouses appear to have "improved" over the last few weeks, with officials from both countries meeting several times and citing progress.

For much of 2018, the U.S. and China were embroiled in a tit-for-tat trade fight, as they increased levies on each other's goods over disagreements about Chinese subsidies and alleged forced technology transfers from American firms to their Chinese partners.

In late February, U.S. President Donald Trump delayed plans to increase tariffs on $200 billion in Chinese goods to 25 percent from 10 percent, citing "substantial progress" in the latest talks with Beijing. He said the world's two largest economies would plan a summit to "conclude an agreement" assuming "both sides make additional progress.

That meeting with Chinese President Xi Jinping is set to take place at Trump's resort, the Mar-a-Lago golf club in Palm Beach, Florida.

Three Stages

Going forward, the process to reach a trade deal would be expected to occur in three phases, said Goldman.

Most immediately, U.S. and Chinese officials are likely to continue meeting over the next few weeks to work out differences on the outstanding issues.

After that, it will likely progress to stage two, resulting in a Trump and Xi meeting in late March to iron out unresolved issues, said the investment bank.

If the Florida meeting takes place, Goldman predicts that there would be a 75 percent probability that the two presidents will announce a formal agreement of some kind.

The ongoing negotiations have included thorny issues between both countries, such as enforcing punishment for intellectual property theft, technology transfer and structural reforms related to trade and economic policies.

"That said, we expect that whatever is agreed at that point will lack specifics in many areas and that additional technical work will still need to be done after the presidential meeting takes places," it said in the report.

The third phase — which would be the most unclear in the outcome — is enforcing of the agreement, where the issue of tariff rates will raise some uncertainty, said Goldman Sachs in its report.

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