China Tariff Increase On Hold as Limited Trade Agreement Announced

Tuesday, October 15, 2019

Sandler, Travis & Rosenberg Trade Report

Tariffs on $250 billion worth of imports from China will not be increased to 30 percent on Oct. 15 after the U.S. and China announced an agreement in principle on the first phase of a broad trade agreement. However, the agreement has no other effect on the additional tariffs the U.S. has in place on nearly $400 billion worth of Chinese goods, which currently range from 15 percent to 25 percent.

(Click here to listen to ST&R’s “Two Minutes in Trade” podcast about this development. Click here for ST&R’s comprehensive overview of the Section 301 tariffs on Chinese goods.)

According to President Trump, a major component of the agreement is that China has agreed to increase its purchases of U.S. agricultural products to $40-50 billion annually within two years. The president and other senior administration officials said the agreement also includes provisions on intellectual property, expanded market access for financial services, revised sanitary and phytosanitary measures, technology transfer, and transparency in foreign exchange markets, although the specifics of those provisions are not yet known. U.S. Trade Representative Robert Lighthizer added that the U.S. has “made some corrections on our side” as well but gave no further details.

Other issues have yet to be fully worked out, including how the agreement will be enforced. The two sides have agreed to “a very elaborate consultation process” under which issues can be escalated through a defined structure of assigned officials, Lighthizer said, but still have to determine “what will happen if there’s not a resolution” to a specific problem.

Trump said he expects the process of getting the agreement down on paper to take three to five weeks and that it could be signed at an Asia-Pacific Economic Cooperation forum summit in Chile in Nov. 16-17. The president acknowledged to reporters that the deal could fall apart during this time but expressed optimism that the two sides will finalize and sign it. Lighthizer suggested that doing so will play a role in the president’s decision on whether to impose 25 percent additional tariffs on List 4B goods from China on Dec. 15 as scheduled.

Trump added that negotiations on phase two of the agreement will begin “almost immediately after we’ve concluded phase one.” He indicated that additional technology transfer and intellectual property issues will be part of phase two but gave no further details. He also noted that there could be a phase three if necessary.

In addition, other bilateral trade issues are still under consideration and could be tied to this agreement. These include restrictions on exports to Huawei and other Chinese companies on the so-called Entity List as well as the Treasury Department’s designation of China as a currency manipulator.

© 2019, Sandler, Travis & Rosenberg, P.A. Originally published in the 10/15/19 issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission.

Comments are closed