US, China interim deal may set new normal for ‘managed trade’, impact global commerce: analysts

The in-principle agreement between the US and China to avert their festering trade war could set a new normal for “managed trade” with adverse implications on other countries in the global trade, analysts said.

US President Donald Trump tweeted on Thursday: “getting VERY close to a BIG DEAL with China.” As part of the proposed deal, Washington will roll back existing tariff rates on Chinese goods and not impose new ones on $160 billion of Chinese goods that were to take effect from Sunday.

After a meeting with his top officials on Thursday, Trump said for the first time both sides want the agreement, as compared to his constant refrain that only Beijing is desperate to strike a deal with “us” (Washington). “They want it, and so do we!” Trump tweeted.

What China must do

He did not disclose the details of the agreement. But Trump told one of his advisors that the proposed agreement will require China to purchase $50 billion of American farm products such as soyabeans and pork, among others, in 2020, along with energy and other goods, according to a report in The Wall Street Journal.

“In exchange, the US would reduce the tariff rate on many Chinese imports, which now ranges from 15 per cent to 25 per cent,” it reported.

“The US side has offered to slash existing tariff rates by half on roughly $360 billion in Chinese-made goods, in addition to cancelling the tariffs on $156 billion in goods that Trump had threatened to impose on Sunday [and] that offer was made to Beijing in the past five days or so,” it reported..

“Should Beijing fail to make the purchases it has agreed to, original tariff rates would be re-imposed”, as part of what is called a “snapback” provision, the WSJ reported.

Further, as a “good will gesture, the US is expected to announce some tariff cuts soon. “The President is upbeat and enthusiastic about his breakthrough,” according to Michael Philsbury, a China scholar at the Hudson Institute, who advises the Trump administration, the WSJ report said.

The phase-one agreement will also include “measures to improve intellectual property protection, open the Chinese financial services market and prevent current manipulation.”

Surprisingly, China has not made any statement about the proposed limited agreement that the Trump administration is claiming as a breakthrough.

“By stressing that both sides want to reach a deal, Trump has clearly taken a more positive stance, which seems to indicate that China and the US are meeting halfway on trade,” the Global Times maintained.

The prospects of the new deal pushed US stocks to record highs on Thursday in the New York stock market.

Earlier, in previous rounds of talks, China had demanded that, as a confidence-building measure, the US must remove all the additional tariffs that it had imposed during the last 18 months.

But lawmakers and China hawks from both parties — Republicans and Democrats — in the US cautioned Trump that he should not plunge into a limited agreement without having a comprehensive agreement.