December 3, 2018

Initial Chinese Tariffs Could Become Permanent Despite Trade Truce

 |  By: Anna-Lisa Laca

President Donald Trump and Chinese President Xi Jingping agreed to what’s essentially a trade timeout over the weekend at the G20. President Trump agreed not to further increase tariff rates on January 1 as previously threatened and in return, President Xi agreed to purchase an ambiguous “substantial” amount of American goods including soybeans. Still, analysts point out that the tariffs are still in place and could become permanent despite this twist in the trade trauma.

“The agreement hints that the initial 25 percent tariffs that Mr. Trump placed on $50 billion in Chinese goods last summer could become permanent — if not in place for a protracted period,” The New York Times reported on Monday adding that the initial tariffs on $50 billion of Chinese imports could be in place until it is clear that China has kept its promises of wholesale structural changes.

Despite President Trump’s claims on Twitter that China is going to be “opening up” their markets, the official statement released by the White House only hints to a Chinese purchase. It says nothing about tariffs being lifted following the 90-day trade truce.

In his statements following the two-hour dinner meeting between Trump and Xi, United States Treasury Secretary Steve Mnuchin, suggested the tariffs could be phased out if China follows through on their promises to make changes on several points of tension between the two countries.

Still, analysts aren’t convinced the situation gets resolved quickly.

On Sunday, Goldman Sachs economist Alec Phillips told investors it will be “challenging” to find compromise.

"While the Xi-Trump dinner has clearly improved the tone of the U.S.-China relationship for the time being, and we would expect an initial positive market reaction, the 'pause' prolongs the period of uncertainty around the eventual structure of trade relations between the two countries," Phillips wrote. "The specter of higher and broader U.S. tariffs remains, and the underlying issues clouding the trade relationship are deferred to further negotiations. With additional time to pursue negotiations, we think the chance of a comprehensive deal that involves rollback of tariffs is slightly higher than before, but still not our base case — perhaps a 20 percent probability over the next three months."

Bill Bidermann US & China 112918