US-China trade war
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Chinese Vice-Premier Liu He, US Treasury Secretary Steven Mnuchin, US Trade Representative Robert Lighthizer, and US Ambassador to China Terry Branstad talk after concluding their meeting at the Diaoyutai State Guesthouse in Beijing, China, May 1, 2019. Photo: Reuters

PoliticoUS-China negotiators near deal to roll back some tariffs

  • US-China negotiators near deal to roll back some tariffs on more than US$250 billion-worth of Chinese goods, according to two people close to the talks
  • Latest round of talks in Beijing were held by US Treasury Secretary Steven Mnuchin, US Trade Representative Robert Lighthizer and Chinese Vice-Premier Liu He

This story is published in a content partnership with POLITICO. It was originally reported by Adam Behsudi on on May 1, 2019.

The United States and China are closing in on a deal that includes broad agreement on how the Trump administration will roll back a portion of the tariffs it has imposed on more than US$250 billion-worth of Chinese goods, according to two people close to the talks.

The two sides have also reached an understanding on how to enforce the agreement, although the sources cautioned that details still need to be worked out when a Chinese delegation arrives in Washington on May 8. Expectations are high that the two sides could announce a deal by the end of next week, setting the stage for a summit between US President Donald Trump and Chinese President Xi Jinping to sign it.

US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin wrapped up a quick visit to Beijing on Wednesday where they met with Chinese Vice Premier Liu He for a working dinner and a formal discussion the following day. Mnuchin tweeted that the meetings were “productive”.

Chinese vice-premier Liu He, right, poses with US Treasury Secretary Steven Mnuchin, centre, and US Trade Representative Robert Lighthizer, left, before they proceed to their meeting at the Diaoyutai State Guesthouse in Beijing, Wednesday, May 1, 2019. Photo: AP

The two sides have reached general agreement on a plan for the US to immediately remove a 10 per cent tariff on a portion of the US$200 billion worth of Chinese imports affected by the penalty and then phase in lifting the duties on the rest of the items “quickly”, said one of the people familiar with the discussions.

A 25 per cent tariff the US has imposed on roughly US$50 billion-worth of other Chinese goods would likely stay in place longer, possibly until after the 2020 election, leaving it to a second term Trump administration or a new president to deal with, the source said.

The Trump administration imposed the 25 per cent tariff on goods such as chemicals and machine components in response to a US investigation that concluded China was forcing US companies to hand over technology and intellectual property as a condition of doing business there.

The two countries continue to debate the terms of leaving tariffs in place. It’s still unclear whether China would lift its retaliatory tariffs on US exports like soybeans and pork or shift retaliatory tariffs to other products, the people said. China has imposed counter-tariffs on roughly US$110 billion worth of US goods.

The two countries have also made progress toward a plan for enforcing the deal, the sources said.

US Treasury Secretary Steven Mnuchin and his Trade Representative Robert Lighthizer arrive for a group photo session after their meeting with Chinese Vice-Premier Liu He, at the Diaoyutai State Guesthouse in Beijing, China, May 1, 2019. Photo: Reuters

The process would track closely to what Lighthizer has described to US Congress: a series of regular meetings to address complaints about China’s compliance. If a complaint cannot be resolved, the US could move forward unilaterally with tariffs.

China would not be able to retaliate as long as the US showed that it had followed the consultation process, one source explained.

But China would have the right to take its own actions against the US for failing to comply with the deal using the same process. Beijing could also challenge the US if it felt the process for resolving a complaint had been circumvented, the source said.

Lighthizer, in responses submitted Tuesday to written questions from Senate Finance Committee members, said the option of pursuing unilateral action after a series of meetings “did not exist in past dialogues.” He said issues would be prioritised on a case-by-case basis with continued consultations with Congress.

Mnuchin told Fox Business on Monday that the enforcement mechanism was “close to done” adding that there is “a fundamental understanding in that area”. In April, he said enforcement would work “in both directions”.

Liu, who is leading the talks for the Chinese side, will return to Washington next week with a delegation of about 100 officials, said one of the people familiar with the talks.

China is expected to include promises to end forced transfers of technology and provide equal treatment to US firms, in line with a foreign investment law the government approved in March. But critics say it’s still unclear how effectively it will implement those pledges. An agreement will also include commitments by China to purchase a significant amount of US exports including soybeans and natural gas.

But the two sides are still struggling to bridge the gap on a number of issues including China’s subsidies for domestic industries, market access for cloud services and the willingness of Beijing to ease restrictions on data flows and data localisation requirements, the people said.

US businesses are supportive of the administration’s efforts to rein in Chinese policies but are also keen to see a de-escalation in the trade fight that has lead to widespread uncertainty in global supply chains.

The US-China Business Council released a new report on Wednesday showing that US goods exports to China declined by 7 per cent in 2018 after reaching an all-time high the year before. China remains the third largest market for US goods exports after Canada and Mexico.

“A sustainable agreement must provide a way to verify that commitments are implemented, including for further market opening, intellectual property protection, and equal treatment for US companies,” USCBC president Craig Allen said in a statement. “That agreement must also include a plan of action for the removal of all or most of the tariffs to reverse the damage we saw in 2018.”