President Donald Trump and Chinese President Xi Jinping agreed Saturday to a temporary trade cease-fire to allow time for more negotiations but trade experts are doubtful that 90 days will be enough time to resolve the thorny and complicated issues that divide the two countries.
The move means that U.S. tariffs on $200 billion worth of goods will not rise to 25 percent on January 1, from 10 percent currently.
A statement from the White House reads: “President Trump has agreed that on Jan. 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10 percent rate, and not raise it to 25 percent at this time. China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial and other product from the United States to reduce the trade imbalance between the two countries. China has agreed to start purchasing agricultural product from [American] farmers immediately.”
Items in the sporting goods industry that have been affected in the round of tariffs include backpacks and sports bags; baseball, softball, hockey and ski gloves; bikes; wool and other fabrics; kayaks; camp chairs and hats.
The Buenos Aires breakthrough also seemingly delays any tariffs on the remaining $267 billion of China’s exports to the U.S. that Trump has threatened. That round would include a broader range of items in the active lifestyle industry, including apparel, footwear and a wider range of equipment.
The White House had already put a 25 percent tariff on a separate list of Chinese imports valued at more than $50 billion. China has retaliated with tariffs on U.S. goods.
If the two countries fail to reach a deal at the end of 90 days, however, a tariff rate hike from to 10 percent to 25 percent will be implemented, the White House statement added.
In a note, Dutch bank ING wrote that realistically, a trade deal that addresses all the complaints that the U.S. has about China would take years to negotiate. ING said: “90 days to work out a broad agreement is very short. Especially because the agreement should also encompass a deal on more sensitive issues like the theft of intellectual property and forced technology transfers in joint ventures. Most wide-ranging bilateral trade agreements take years to negotiate.”
“Make no mistake about it: The issues that we have with China are deep structural issues, and you’re not going to resolve all of them in 90 days or even 180 days,” agreed Dean Pinkert, a former commissioner on the U.S. International Trade Commission and now a partner at the law firm Hughes Hubbard & Reed, in an interview with the Associated Press. The Trump administration is “going to have to decide how much progress they need in order to define it as a win.”
Trump has repeatedly attacked Beijing for practices such as intellectual property theft, barriers to American companies that want to operate in China and the massive trade imbalance between the two countries.
Washington also regards Beijing’s ambitious long-term development plan, “Made in China 2025,” as a scheme to dominate such fields as robotics and electric vehicles by unfairly subsidizing Chinese companies and discriminating against foreign competitors.
In addition to the short timeline, there are other reasons why the U.S.-China tariff fight would re-escalate, according to political risk consultancy Eurasia Group.
“Trump could lose his enthusiasm for a deal if he encounters criticism domestically for a weak agreement, if his fears over a US market downturn fade, and once the theater of his meeting with Xi is over,” Eurasia Group said in a note on Saturday.
Some reports have noted that China’s read of what happened in Argentina is also different. China seems to believe that the only real movement was an agreement to halt additional tariffs and a mutual commitment to reduce the ones Trump and Xi put into effect this year.
Beijing has also proven reluctant to sacrifice its ambition, no matter what longer-term agreement with the U.S. it eventually reaches.
The truce comes, however, as Xi faces pressure to resolve the trade dispute before it starts to impact the Chinese economy. He has been reaffirming China’s commitment to reform in various speeches over the past few weeks, and he did the same thing at the G20.
“China will continue to deepen market-oriented reform, protect property rights and IPR, encourage fair competition and do more to expand imports,” Xi told the gathering in Buenos Aires.
With stock markets rallying, the Buenos Aires breakthrough still appeared to calm investors who worried about financial damage from the trade hostilities. Many also held out hope that the extra time could lead to a break-through.
Trump showed optimism Monday morning about breaking the impasse with China. In a tweet, he called his meeting with Xi at the G-20 summit in Argentina “extraordinary.” He promised “very good things will happen.”
“We are dealing from great strength, but China likewise has much to gain if and when a deal is completed,” he wrote.
In separate tweets Monday, he said China has “agreed to reduce and remove” a 40 percent tariff on U.S. car imports and “immediately” purchase more U.S. agricultural products.
Treasury Secretary Steven Mnuchin suggested that some of the longstanding disputes with China could get resolved “in the short term,” but others will take longer to settle.
Many industry and retail organizations welcomed the news of the delay while also promising to continue to closely monitor the negotiations.
A few responses are below:
Sports & Fitness Industry Association.
“SFIA sees this action as a positive step toward resolving our trade issues with China,” said SFIA President and CEO, Tom Cove. “We are hopeful this 90-day period will lead to an agreement that does not rely on punitive tariffs to achieve our policy objectives.”
Footwear Distributors & Retailers of America (FDRA)
FDRA President and CEO Matt Priest said, “The footwear industry welcomes the news that the United States will not pursue any new tariffs on Chinese goods while the two countries seek a negotiated outcome to this protracted trade war. Our companies know far too well the negative impact import duties have on American consumers and are grateful that additional tariffs have not been placed on footwear during the 301 process. That being said, we will continue to advocate on behalf of our industry, calling for the end of all 301 duties and ultimately, the elimination of all $3 billion in footwear duties paid annually.”
American Apparel & Footwear Association (AAFA)
American Apparel & Footwear Association President and CEO Rick Helfenbein said, “The resumption of talks between the U.S. and China is encouraging for our industry, as we are dependent on complex global supply chains for our marketplaces around the world. While we are pleased that American consumers have been protected from additional tariffs on most of our products to date, this announced 90-day reprieve on increased and future tariffs is promising and we hope it will lead to the swift removal of the punitive tariffs already imposed by the Administration. We will continue to emphasize to the Administration the need to stop taxing American consumers to the detriment of our retail economy. In that light, we will be watching the negotiations closely.”
Outdoor Industry Association (OIA)
“Today’s agreement between U.S. President Trump and Chinese President Xi is welcome news for American consumers and outdoorists of every stripe” said Amy Roberts, executive director of OIA. “OIA will continue to press the case that thousands of large and small retailers and manufacturers of outdoor products play a significant role in bolstering the U.S. economy and that U.S. trade policies should serve to help them continue to innovate and prosper.”
Consumer Technology Association (CTA)
Gary Shapiro, president and CEO, CTA, said, “We’re encouraged to see Presidents Trump and Xi working together to reduce trade barriers between the U.S. and China. We applaud President Trump’s decision not to raise tariffs to 25 percent on Jan. 1. While China’s restrictive measures should be addressed, tariffs are taxes – and these past five months since the tariffs went into effect hurt U.S. businesses and consumers. Through September, the tech industry alone paid $349 million more on imported goods from China – a nearly 200 percent increase compared to last year – and more than doubling the ten percent tariff rate would likely hurt consumers, put several American companies out of business and displace thousands of American workers. We look forward to continued progress between the U.S. and China – eliminating the current tariffs and not adding new trade taxes to even more products – so we can keep our economy strong and our job creation growing.”
National Retail Federation (NRF)
National Retail Federation (NRF) president and CEO Matthew Shay said, “We commend President Trump for his efforts to restore a fair and balanced trade relationship with China. The administration’s decision to give diplomacy a chance and at least temporarily avoid the imposition of increased and additional tariffs is an encouraging sign.
“It is clear the administration has heard the voices of those negatively impacted by existing tariffs. We hope this 90-day tariff pause will lead to a positive resolution that removes tariffs altogether and improves US-China trade relations.
“Retailers are pleased by this progress. At the same time, uncertainty over the future of NAFTA remains. To protect American jobs and critical North American supply chains, the administration should continue to work through the process until a modernized, trilateral agreement is approved by Congress.”
Retail Industry Leaders Association (RILA)
RILA’S VP for international trade, Hun Quach, said in a statement on Saturday, “Tonight’s breakthrough shows that President Trump kept American families in mind when he delayed tariffs from being increased on $200 billion worth of imports on January 1. America’s retailers are encouraged by President Trump and President Xi’s decision to find a path forward that will keep America competitive, grow our economy, and support the millions of American jobs impacted by trade.
“Achieving a resolution that foregoes a 25 percent increase and any additional tariffs placed on the everyday consumer items will benefit millions of American families across the country. We look forward to working with the Administration as they continue to work towards a resolution, which includes providing a product exclusion process for the third tranche of tariffs as was provided for the first two rounds of tariffs.”