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U.S.-China reach phase-one trade deal

Deal includes delay in Dec. 15 tariffs, rollback of some existing tariffs and Chinese promise to buy more U.S. ag products.

By Jenny Leonard, Shawn Donnan, Saleha Mohsin and Jennifer Jacobs

U.S. negotiators have reached the terms of a phase-one trade deal with China that now awaits President Donald Trump’s approval, according to people briefed on the plans.

The deal being presented to Trump includes a delay in the Dec. 15 new round of tariffs, a schedule for a rollback of some of the existing ones and a promise by the Chinese to buy more U.S. agricultural goods, according to the people. The terms have been agreed but the legal text has not yet been finalized, people said.

Trade advisers met with the president on Thursday afternoon to discuss the pact and an announcement could come by day’s end, the people said. A White House spokesperson declined to comment.

The administration has reached out to allies on Capitol Hill and in the business community to issue statements of support once the announcement is made, they said.

U.S. stocks rose and Treasury yields spiked on the news. Earlier Thursday, Trump tweeted that the U.S. and China are “VERY close” to signing a “BIG” trade deal, also sending equities higher.

“They want it, and so do we!” he tweeted five minutes after equity markets opened in New York, sending stocks to new records.

Getting VERY close to a BIG DEAL with China. They want it, and so do we!

    — Donald J. Trump (@realDonaldTrump) December 12, 2019

The phase-one pact has been expected to reduce existing tariffs and delay ones due to take effect on Sunday.

Trump has rejected deals with China before. Negotiators have been working on the terms of the phase-one deal for months after the president announced in October that the two nations had reached an agreement that could be put on paper within weeks.

The U.S. has added a 25% duty on about $250 billion of Chinese products and a 15% levy on another $110 billion of its imports over the course of a roughly 20-month trade war. Discussions now are focused on reducing those rates by as much as half, as part of the interim agreement Trump announced almost nine weeks ago.

In addition to a significant increase in Chinese agricultural purchases in exchange for tariff relief, officials have also said a phase-one pact would include Chinese commitments to do more to stop intellectual-property theft and an agreement by both sides not to manipulate their currencies.

Put off for later discussions are knotty issues such as longstanding U.S. complaints over the vast web of subsidies ranging from cheap electricity to low-cost loans that China has used to build its industrial might.

Officials from the world’s two biggest economies have been locked in negotiations on the phase-one deal since Trump announced it.

The new duties, which are due to go ahead at 12:01 a.m. Washington time on Sunday unless the administration says otherwise, would hit some $160 billion in consumer goods from China including smartphones and toys.

Before today, Trump’s advisers have sent conflicting signals and stressed that he hadn’t made up his mind on the next steps. Advocates of delaying the tariff increase have argued that continued negotiations with Beijing will enable him to maintain a tough line with China without inflicting the economic damage that more import taxes might bring.

The decision facing Trump highlights one dilemma he confronts going into the 2020 election: Whether to bet on an escalation of hostilities with China and the tariffs he is so fond of or to follow the advice of more market-oriented advisers and business leaders who argue a pause in the escalation would help a slowing U.S. economy bounce back in an election year.

What Bloomberg’s Economists Say...

    “The outcome of U.S.-China trade talks will be a key determinant of the trajectory for 2020 growth. At one extreme, a deal that takes tariffs back to May 2019 levels, and provides certainty that the truce will hold, could deliver a 0.6% boost to global GDP. At the other, a breakdown in talks would mean the trade drag extends into the year ahead.”

    --Tom Orlik, chief economist

Robert Lighthizer, the U.S. trade representative leading the negotiations with China, is in a camp that sees progress in talks and wants them to continue without further escalation, according to people familiar with the discussions. That would set up a push to conclude the talks in January, possibly before a State of the Union address to Congress by Trump.

--With assistance from Justin Sink, Vince Golle and Jennifer Jacobs.
To contact the reporters on this story:
Jenny Leonard in Washington at jleonard67@bloomberg.net;
Shawn Donnan in Washington at sdonnan@bloomberg.net;
Saleha Mohsin in Washington at smohsin2@bloomberg.net;
Jennifer Jacobs in Washington at jjacobs68@bloomberg.net
To contact the editors responsible for this story:
Margaret Collins at mcollins45@bloomberg.net
Brendan Murray, Ana Monteiro
© 2019 Bloomberg L.P.
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