Phase One U.S., China Trade Deal To Be Signed This Week: Report

Topline: China’s top negotiator, Vice-Premier Liu He, will lead a delegation to Washington this week to sign the much-anticipated phase one trade deal, marking a significant de-escalation of the ongoing U.S.-China trade war, the South China Morning Post first reported on Monday.

• Although neither side has yet to officially confirm the trip this week, “Washington has sent an invitation and Beijing has accepted it,” a source briefed on the matter told the Post. 
• Since a phase one deal was signed earlier this month, resulting in a rollback of both existing and scheduled tariffs, the U.S. and China have been working to translate the terms of the agreement and finalize legal reviews.
• Unlike the U.S., China is yet to officially confirm some of the details of the phase one agreement, which also includes ramping up purchases of U.S. agricultural products.
• President Trump last week described progress being made on formalizing the deal, adding that there will eventually be a whole signing ceremony between himself and Chinese president Xi Jinping. 
• U.S. Trade Representative Robert Lighthizer had said earlier this month that deputy-level representatives of the two countries would sign a deal in the first week of January. 
• The Dow Jones and S&P 500 indexes were each down by about 0.50% on Monday, though in part due to investors repositioning their portfolios for 2020.

Crucial quote: “We’ll probably have a signing on that within the next week or so — we’re just waiting for the translation,” White House trade advisor Peter Navarro confirmed in an interview on Monday.

Key background: The official signing of the phase one deal will defuse the 19-month long trade war and constitute one of President Trump’s biggest economic victories to date. Officials from both sides had worked tirelessly to agree upon a deal earlier this month and avoid the looming December 15 tariff deadline. An agreement was made in principle, with Trump signing off on the details later in the day, on December 13. That gave Wall Street a boost, as renewed trade optimism helped send the stock market to new record highs going into the end of 2019.

The phase one deal would see the U.S. remove some of the tariffs it placed on $360 billion worth of Chinese goods “phase by phase.” In an announcement, Trump described the “amazing deal” in a series of tweets: The U.S. will slash the tariff rate in half, to 7.5% from 15%, on roughly $120 billion of goods. Tariffs on nearly $250 billion of goods, including machinery, electronics and furniture, will remain at 25%. The next round of scheduled U.S. tariffs, which were planned to take effect on another $156 billion of Chinese goods—including smartphones, toys and consumer electronics—on December 15, were canceled as part of the trade deal, both sides confirmed. China will also increase its purchases of American farm products to a total of $40 billion a year, with the goal of raising it to $50 billion, U.S. Trade Representative Robert Lighthizer confirmed.

What to watch for: If any of the phase one deal’s provisions are changed during the legal and translation process. 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 agricultural purchasing target, the U.S. can reinstate tariffs.