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- At a dinner Saturday, US President Donald Trump and Chinese President Xi Jinping agreed to a 90-day delay of any new tariffs.
- It marked the most substantial progress toward ending the US-China trade war.
- The deal was cheered by US business groups and preceded a jump in stocks Monday.
- But the two sides remain far apart on a final deal, and there are substantial differences between the Trump administration’s and Beijing’s outlooks.
- According to analysts, it is unlikely that a broader deal is reached in 90 days, and the possibility for an escalation of the trade war remains.
The US and China on Saturday took their most significant step yet toward ending their trade war, as US President Donald Trump and Chinese President Xi Jinping agreed to a temporary economic cease-fire.
- The deal reached at the G20 summit in Argentina includes a 90-day delay in the imposition of new tariffs.
- The US also agreed to hold off on increasing the tariff rate on $200 billion worth of Chinese goods to 25% from 10%.
- China agreed to purchase US agricultural and energy goods, and the two sides said they would work to resolve differences on key structural issues such as China’s theft of US intellectual property.
Trump touted the agreement with Xi on Twitter, calling it a good deal for American farmers and businesses.
“My meeting in Argentina with President Xi of China was an extraordinary one,” Trump tweeted. “Relations with China have taken a BIG leap forward! 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. Level the field!”
A welcome reprieve
While there are plenty of issues still left to resolve in the longer term, the delay in further tariff actions was applauded by US business groups and investors.
“It is clear the administration has heard the voices of those negatively impacted by existing tariffs,” Matthew Shay, the CEO of the National Retail Federation, said in a statement. “We hope this 90-day tariff pause will lead to a positive resolution that removes tariffs altogether and improves US-China trade relations.”
Other industry groups hit by the tariffs, ranging from tech to farming, also welcomed Trump’s deal. But many urged the president to continue to try to reach a long-term agreement to end the trade war.
The markets also gave the delay a thumbs-up, with stocks in both China and the US making solid gains on Monday.
Opposing views of the same meeting
But the meeting leaves many questions unanswered. Among those questions is what exactly was agreed to in Saturday’s meeting.
The statements from the Trump administration and Beijing following the dinner offer substantially different interpretations of what the two sides agreed to, which raises questions over how sustainable the cease-fire will be:
- For example, the official statement from China does not mention the 90-day deadline, and Chinese state media’s references to the deadline attribute the idea to the White House.
- There were also differences on China’s preferences of US goods and on the timeline for a trade-deficit reduction.
- Beijing did not mention Trump’s Sunday-night declaration that China agreed to lower tariffs on American-made cars.
Two economists at Citi, Li-Gang Liu and Xiaowen Jin, said the US was more focused on long-term changes to China’s economic policies, while Beijing’s statement kept its eye focused on shorter-term fixes that would reduce the US-China trade disparity.
“Comparing the official statements, we find that the US stresses more on China’s structural reform issues on forced technology transfer, IP protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture, while China continues to highlight its willingness to increase imports from the US to reduce the trade imbalance as well as open its markets wider for foreign participation,” the economists said.
A short-term fix
Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said the short-term deal was a “face-saving measure that allowed both sides to come away with wins for their domestic audiences.”
“The agreement between Presidents Trump and Xi at the G20 is a deferment of disaster rather than a fundamental rebuilding of the trading relationship between the US and China,” Shepherdson said.
Given the substantial number of issues still left to be resolved – from intellectual-property theft to Chinese support for state-controlled corporations – a 90-day window is far too short to reach a broad agreement, said Ed Mills, a policy analyst at Raymond James.
“If we have not been able to reach an agreement in the last eight months that increases market access and lowers tariffs, it’s difficult to see a 90 day deadline significantly changing the Chinese position on key issues,” Mills said.
“Such differences are unsurprising after a brief dinner (with translation) where each side tends to see and hear what they want,” added Chris Krueger, a strategist at Cowen Washington Research Group. “Still, all together, it is hard to imagine that a comprehensive agreement can be reached in 90 days that can be credible, monitored, and enforced.”
This could lead to another punt, similar to Trump’s delays on imposing the steel and aluminum tariffs on allies, Krueger said. But even that may not be enough time to get a long-lasting deal together.
Negotiations are set to kick off in mid-December, when Chinese officials come to the US to meet with US Trade Representative Robert Lighthizer. But while the discussions are encouraging, there is a real chance the tariffs on the $200 billion worth of goods get a boost to 25% come March.
“President Trump is now directly involved in the dealmaking process, increasing the sensitivity around the final outcome,” Mills said. “We see it as somewhat to very likely given these dynamics that negotiations begin to fray and the threat of a tariff hike to 25% with an additional tariff package as further leverage reenter market considerations.”