Most China Tariffs Will Remain In Effect Until ‘Phase Two’ Trade Deal: Mnuchin

Topline: Hours before the Phase One trade deal is scheduled for signing, U.S. Treasury Secretary Steven Mnuchin praised some aspects of the agreement, while also confirming that a substantial amount of U.S. tariffs on China will remain in place until a future Phase Two trade agreement is reached, he said in an interview with CNBC on Wednesday. 

• The Phase One deal that was reached last month saw the U.S. cancel scheduled December 15 tariffs on Chinese electronic goods, as well as half the tariff rate to 7.5% on $120 billion worth of other Chinese goods. 
• But a significant portion of tariffs remain in effect, with no confirmed plans to reduce them further: 25% on some $250 billion worth of Chinese imports, mainly geared toward industrial goods and components. 
• “The first step is really focusing on enforcement, but this gives China a big incentive to get back to the table and agree to the additional issues that are still unresolved,” the Treasury Secretary said.
• Despite being adamant that level of tariffs will remain in place, Mnuchin also told CNBC on Wednesday that Trump would consider easing tariffs with further rollbacks in a future Phase Two trade deal with China.
• Mnuchin also reiterated that accusations of forced technology transfers and intellectual property theft will be resolved in the first phase of the trade deal.
• The agreement on Wednesday, however, fails to address digital trade restrictions and China’s cybersecurity regulations that have hurt U.S. technology firms trying to do business in the region—but both Mnuchin and U.S. Trade Representative Robert Lighthizer have said these are key priorities for future phase two negotiations.

Key background: The Phase One trade deal that will be signed on Wednesday includes agreements on intellectual property, technology transfers and currency rules. Most importantly, China has pledged to buy at least $200 billion more of U.S. exports over the next two years, including manufactured goods, farm products, energy, food and services, sources told Reuters.

Crucial statistic: Stock market futures traded lower ahead of Wednesday’s market open, despite the scheduled Phase One deal signing: The S&P 500 was down 0.17% in pre-market trading, while the Dow and Nasdaq fell 0.21% and 0.10%, respectively. 

Tangent: Trump has already touted the Phase One trade agreement as a big part of his 2020 re-election campaign: He called it a “big beautiful monster” at a rally in Toledo, Ohio last week, eliciting cheers from the crowd.

What to watch for: Whether there are in fact strict enforcement mechanisms in the phase one deal that will hold China to its promise of buying $200 billion more in U.S. goods. USTR Lighthizer told Fox Business on Monday that China’s commitments would be monitored closely: “We expect them to live up to the letter of the law. We’ll bring cases, we’ll bring actions against them if they don’t.” In China, on the other hand, the Phase One deal is being viewed as “more of a political document than an economic road map,” and there is reportedly “little chance” of reaching a meaningful phase two agreement any time soon, according to the South China Morning Post.