Major Chinese Purchases Promised; Date of Tariff Reduction Unclear

With the last round of consumer goods imported from China spared, and a reduction in Section 301 tariffs on about $120 billion in goods that were first subject to additional tariffs Sept. 1, some business interests welcomed the de-escalation, but warned that the U.S. should stay focused on more significant economic reforms in China. The tariffs on List 4a, which are at 15 percent and apply to about 3,800 8-digit tariff lines, will go to 7.5 percent.

What day the reduction will go into effect has not been said; a senior government official said a signing of the agreement is expected in the first week of January, and will be done between the U.S. trade representative and China's vice premier. White House chief economic adviser Larry Kudlow said on a conference call with reporters that it would go into effect “just as soon as some paperwork is completed,” including translating the deal into Chinese. A fact sheet on what the phase one deal includes has been released. The notice to appear in the Federal Register that will prevent the previously scheduled tariff round for List 4b this weekend has been scheduled for publication; it said another notice will follow with the tariff reduction “in the near future.”

How much progress can be made in phase two isn't clear, since China is presenting its promises for agricultural purchases -- the president's top priority -- differently from the way American officials are.

President Donald Trump, speaking to reporters at the White House on Dec. 13, said phase 2 negotiations will start immediately. “The China deal covers tremendous manufacturing, farming, a lot of rules, regulations, a lot of things it covers,” he said. “And I say, affectionately, the farmers are going to have to go out and buy much larger tractors, because it means a lot of business, a tremendous amount of business.” He had earlier called the promised purchases of U.S. ag “massive.”

A senior government official said that China will increase its U.S. goods and services purchases by $200 billion next year, with subtargets in services, energy, manufactured goods and including $40 billion to $50 billion in agricultural goods.

But Chinese officials, at a briefing in Beijing, said that the agricultural chapter will “first and foremost expand export of Chinese agricultural products to the United States.” China emphasized that the U.S. will lift the automatic detention of Chinese dairy products and seafood at the border, and will change regulations to make it easier for China to export pears, citrus and fresh dates.

One official also said, “I need to stress here, imports must be based on market principals and WTO rules,” and said that agricultural imports from the U.S. will be based on the U.S. having the most competitive prices, and meeting China's regulations. China suggested that it would not substitute American soybeans for Brazilian soybeans, for instance, by saying that this deal “will not jeopardize other trading partners' interests.” Still, it said compared to the historic average of $24 billion in purchases, volumes will increase by a “notable margin.”

A top government official who gave a press briefing said that he couldn't say why Chinese officials didn't acknowledge the targets, but said they did commit to buying at least $40 billion in products next year, and there are subtargets by category that will be kept confidential, so as not to affect the market. In response to a question about whether there's enough capacity to sell $40 billion to $50 billion to China in one year, he said, “There was certainly an evaluation of what our farmers and growers and ranchers could do in terms of exports. We are very comfortable that our farmers ranchers and growers can meet those numbers.”

China only said it would “consider” not imposing increased tariffs on Dec. 15, even though the U.S. tariffs slated for Dec. 15 are no longer going into effect.

The U.S. Chamber of Commerce said phase one is very positive, but phase two will be harder. Those “negotiations should address consequential and challenging structural issues that impact American businesses' ability to compete on the global economic stage. Those issues include China’s massive subsidies, digital and data discrimination, and a range of outstanding forced technology transfer concerns,” the statement said. “We urge the administration to keep its eyes on the prize,” said Myron Brilliant, head of international affairs for the Chamber. “We call upon both governments to continue working diligently toward a final agreement within six months.”

China said it will crack down on the export of counterfeited products and bad-faith registration of trademarks; it said it will also combat sales of counterfeit goods and pirated goods on e-commerce platforms.

The American senior administration official said there will be non-tariff barriers for U.S. agriculture that will be removed, in dairy, meat, poultry, seafood, animal feed, feed additives and pet food, as well as changes to how China treats biotechnology.

A Chinese official assured journalists in Beijing that all U.S. wheat, corn and rice imports will continue to be limited by tariff rate quotas; the American official said there will be reforms to the TRQs. China lost a case at the World Trade Organization on how it fails to fill TRQs in those three products, as well as a case on domestic support of its farmers.