U.S., China Reach Initial Trade Deal, But Is It As ‘Amazing’ As Trump Claims?

Topline: The U.S. and China have finally agreed upon an initial trade deal in the 19-month-long trade war, resulting in a rollback of both existing and scheduled tariffs, officials from both sides said on Friday.

• The U.S. and China both confirmed the agreement on Friday, reaching a phase one deal that includes tariff relief and increased agricultural purchases, as well as changes to intellectual property and technology issues.
• Chinese officials broke their silence and confirmed the news on Friday morning, following earlier reports that a deal had been reached and was signed off by Trump on Thursday.
• China’s vice commerce minister, Wang Shouwen, said in a Beijing press conference that the U.S. would “phase by phase” remove some of the tariffs it had placed on $360 billion worth of Chinese goods and that “this will create better conditions for China and the United States to strengthen cooperation.”
• That was followed by an announcement from Trump, who described terms of the “amazing deal” in a series of tweets: The U.S. will reportedly slash existing tariffs on Chinese goods to a rate of 7.5%, down from the current 25%.
• What’s more, the next round of scheduled U.S. tariffs, planned to take effect on another $156 billion of Chinese goods on December 15, will be canceled, both sides confirmed. 
• While China will reportedly agree to ramp up its purchases of American farm products, both U.S. and Chinese officials have so far not said whether that will meet the $50 billion figure hoped for by Trump.

What to watch for: Both the U.S. and China have agreed to complete legal reviews of the agreement as quickly and possible, Wang said, with an official signing date reportedly still being worked out. “We don’t even have the agricultural numbers yet,” points out Joseph Brusuelas, RSM chief economist. “If we don’t get them by Monday, this deal could seem like an agreement just to agree, and the market will go down.” He points out that a key provision in this regard is that the Trump administration is leaving a “snap back” provision in the agreement, so if China doesn’t meet its purchasing target, the U.S. can reinstate tariffs.

Crucial quote: “The administration had negotiated itself into a corner and needed a quick victory—and neither side wanted to see December 15 tariffs put into place because that would have caused real damage,” Brusuelas says. “It’s a tentative win for both sides, and for American consumers, who will avoid stiff taxes going into the holiday season.” While admitting that the agreement is progress, at the same time, Wall Street should temper its expectations, he says: “There isn’t a lot of momentum for a phase two deal, and this initial agreement is not as big of a win as both sides are heralding.”

Key background: As officials from both sides worked tirelessly to hammer out a deal ahead of the looming tariff deadline, reports came in on Thursday that negotiators had agreed to terms, and President Trump signed off on them later in the day. Wall Street cheered the good news, sending the stock market to new record highs, though the market’s reaction was notably more tempered on Friday. 

Further reading: Wall Street Hits Record Highs After Reports U.S. Signs Trade Deal With China

This is a developing story.