The US and China reached a truce in their trade war on Friday after Washington agreed a limited deal that will see the US hold off on tariff increases next week in exchange for some Chinese concessions, primarily on agricultural purchases.
The tentative agreement — described by Donald Trump, the US president, as a “substantial phase one deal” — will offer some respite to the global economy and could calm markets unnerved by escalating tensions between the countries.
However, it would fall short of the sweeping reset in US-China economic relations that Mr Trump has sought from his early days in the White House, and on the 2016 presidential campaign trail.
US and Chinese officials are expected to finalise the text of the limited agreement in the next five weeks, ahead of a possible summit between Mr Trump and Xi Jinping, China’s president, at the Apec leaders’ meeting in Chile next month.
If the deal is completed, it would give Mr Trump a chance to claim progress on trade as he faces rising political pressure. Democrats have launched an impeachment inquiry in the House of Representatives over the president’s alleged effort to solicit Ukraine’s help in his 2020 re-election effort.
In their negotiations with the Chinese, Trump administration officials have so far offered only limited accommodations on levies. They agreed to suspend an increase in tariffs on $250bn of Chinese imports, from 25 per cent to 30 per cent, which was due to take effect on Tuesday.
However, they did not roll back any of the existing tariffs on Chinese goods they have imposed since the start of the trade war in early 2018, including 15 per cent levies on a further $110bn of goods that took effect in September. They also kept alive the threat of 15 per cent tariffs on a new batch of Chinese goods, including many consumer products, on December 15.
In addition, the US made no new pledges to ease its crackdown on Huawei, the Chinese telecommunications equipment company that is accused by US officials of being a threat to national security.
Chinese concessions were relatively minor — essentially repackaging existing pledges made over the course of multiple rounds of talks.
Beijing has agreed to some additional purchases of farm goods, particularly soyabeans and pork, to an annual value between $40bn and $50bn, more than double the levels before the trade war, according to Mr Trump.
China also offered some new measures on intellectual property, currency and financial services. But it has been unwilling to make big concessions on industrial subsidies and other practices that have long frustrated US officials and companies. There did not appear to be any mechanism to enforce the deal.
“With our two teams making progress on some part of the agreement under consultation, it is important that we address each other’s concerns properly and make positive headway in the other areas as well,” Mr Xi wrote in a message to Mr Trump released by the White House. “A healthy and steady China-US relationship serves the interest of our two countries and the world at large.”
Mr Trump said he expected the deal to become more ambitious over time. “Doing it in sections and phases I think is, really, better . . . now we can focus on phase two,” he said.
US stocks rallied throughout the day but gave up some their gains after the trade deal was announced at the White House. The S&P 500 closed 1.1 per cent higher after being up as much as 1.9 per cent in the morning. The yield on the 10-year US Treasury rose 7 basis points to 1.738 per cent.
“If you think globally about three of the huge policy uncertainties this year, it has been US-China trade, Fed policy and Brexit — we’ve gotten friendly news on each today,” said David Donabedian, chief investment officer of CIBC US Private Wealth Management.
Jeffrey Gundlach, chief executive of fund manager DoubleLine Capital, warned, however, that the deal did not appear to be very substantive. “The trade deal looks to be more cosmetic than real,” Mr Gundlach said.
Steven Mnuchin, the US Treasury secretary, and Robert Lighthizer, the US trade representative, negotiated the truce with Liu He, China’s vice-premier. Mr Mnuchin said the US was considering rescinding its declaration that China was a currency manipulator as part of the deal, as Beijing is expected to pledge not to engage in competitive devaluation of the renminbi and be more transparent about any interventions.
Although an interim deal along the lines struck on Friday had been debated for weeks by US administration officials, Mr Trump’s decision to place Chinese companies suspected of involvement in human rights violations on an export blacklist, and restrict visas for individuals on similar grounds, had soured the run-up to the talks.
Critics worried that the agreement would be too limited to remove all the uncertainty hanging over the US-China relationship.
“It’s an escape hatch on tariffs, and a win for the farmers, but in terms of substantive benefits to the US economy and rebalancing the trade relationship, it’s a zero,” said one person briefed on the negotiations.
Reaction from corporate America was mixed. The Business Roundtable, which represent big companies, said it welcomed the “progress” and looked “forward to reviewing details of this agreement”. It called on “both governments to work toward making additional structural reforms in China and eliminating tariffs”.
Matt Priest, president of the Footwear Distributors and Retailers of America, an association of shoe companies, added: “The tariffs have already raised consumer costs and prevented shoe companies from growing. One step forward when we’ve taken three steps back on trade policy isn’t a real win for American shoe companies.”