U.S., China near deal to roll back some tariffs

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Chinese Vice Premier Liu He (R), US Treasury Secretary Steven Mnuchin (C) and Trade Representative Robert Lighthizer pose before they proceed to their meeting at the Diaoyutai State Guesthouse in Beijing on May 1, 2019.

The United States and China are closing in on a deal that includes broad agreement on how the Trump administration will roll back a portion of the tariffs it has imposed on more than $250 billion-worth of Chinese goods, according to two people close to the talks.

The two sides have also reached an understanding on how to enforce the agreement, although the sources cautioned that details still need to be worked out when a Chinese delegation arrives in Washington on May 8.

Expectations are high that the two sides could announce a deal by the end of next week, setting the stage for a summit between President Donald Trump and Chinese President Xi Jinping to sign it.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin wrapped up a quick visit to Beijing on Wednesday where they met with Chinese Vice Premier Liu He for a working dinner and a formal discussion the following day. Mnuchin tweeted that the meetings were “productive.”

The two sides have reached general agreement on a plan for the U.S. to immediately remove a 10 percent tariff on a portion of the $200 billion worth of Chinese imports affected by the penalty and then phase in lifting the duties on the rest of the items “quickly,” said one of the people familiar with the discussions.

A 25 percent tariff the U.S. has imposed on roughly $50 billion-worth of other Chinese goods would likely stay in place longer, possibly until after the 2020 election, leaving it to a second-term Trump administration or a new president to deal with, the source said.

The Trump administration imposed the 25 percent tariff on goods such as chemicals and machine components in response to a U.S. investigation that concluded China was forcing U.S. companies to hand over technology and intellectual property as a condition of doing business there.

The two countries continue to debate the terms of leaving tariffs in place. It’s still unclear whether China would lift its retaliatory tariffs on U.S. exports like soybeans and pork or shift retaliatory tariffs to other products, the people said. China has imposed counter-tariffs on roughly $110 billion worth of U.S. goods.

The two countries have also made progress toward a plan for enforcing the deal, the sources said.

The process would track closely to what Lighthizer has described to Congress: a series of regular meetings to address complaints about China’s compliance. If a complaint can’t be resolved, the U.S. could move forward unilaterally with tariffs.

China would not be able to retaliate as long as the U.S. demonstrated that it had followed the consultation process, one source explained.

But China would have the right to take its own actions against the U.S. for failing to comply with the deal using the same process. Beijing could also challenge the U.S. if it felt the process for resolving a complaint had been circumvented, the source said.

Lighthizer, in responses submitted Tuesday to written questions from Senate Finance Committee members, said the option of pursuing unilateral action after a series of meetings “did not exist in past dialogues.” He said issues would be prioritized on a case-by-case basis with continued consultations with Congress.

Mnuchin told Fox Business on Monday that the enforcement mechanism was “close to done” adding that there is “a fundamental understanding in that area.” In April, he said enforcement would work “in both directions.”

Liu, who is leading the talks for the Chinese side, will return to Washington next week with a delegation of about 100 officials, said one of the people familiar with the talks.

China is expected to include promises to end forced transfers of technology and provide equal treatment to U.S. firms, in line with a foreign investment law the government approved in March. But critics say it’s still unclear how effectively it will implement those pledges. An agreement will also include commitments by China to purchase a significant amount of U.S. exports including soybeans and natural gas.

But the two sides are still struggling to bridge the gap on a number of issues including China’s subsidies for domestic industries, market access for cloud services and the willingness of Beijing to ease restrictions on data flows and data localization requirements, the people said.

U.S. businesses are supportive of the administration’s efforts to rein in Chinese policies but are also keen to see a de-escalation in the trade fight that has lead to widespread uncertainty in global supply chains.

The U.S.-China Business Council released a new report on Wednesday showing that U.S. goods exports to China declined by 7 percent in 2018 after reaching an all-time high the year before. China remains the third largest market for U.S. goods exports after Canada and Mexico.

“A sustainable agreement must provide a way to verify that commitments are implemented, including for further market opening, intellectual property protection, and equal treatment for US companies,” USCBC president Craig Allen said in a statement. “That agreement must also include a plan of action for the removal of all or most of the tariffs to reverse the damage we saw in 2018.”

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