The truce between the US and China emerged after a highly anticipated dinner Saturday between Trump and Xi on the sidelines of the Group of 20 summit in Argentina. The leaders agreed to stop the introduction of new tariffs and intensify their trade talks, Chinese Foreign Minister Wang Yi told reporters hours later in Buenos Aires.
The White House called the meeting “highly successful,” saying the US will leave existing tariffs on US$200 billion of Chinese goods at 10% and refrain from raising that rate to 25% as planned on Jan 1. In exchange, the US wants an immediate start to talks on Trump’s biggest complaints about Chinese trade practices: intellectual property theft, non-tariff barriers and cyber theft.
After 90 days, if there’s no progress on structural reform, the US will raise those tariffs to 25%, White House Press Secretary Sarah Huckabee Sanders said in a statement. China also agreed to boost its purchases of agricultural and industrial goods to reduce its trade imbalance with the US, she said.
“This was an amazing and productive meeting with unlimited possibilities for both the United States and China,” Trump said in the statement. “It is my great honour to be working with President Xi.”
Investors have been eager for signs of a progress toward keeping an already costly trade dispute from spiralling into a new and broader cold war. White House economic adviser Larry Kudlow said that the meeting went “very well” in a brief comment to reporters as the Trump delegation left Buenos Aires for Washington. The outcome gives both sides enough to claim some victory without resolving the fundamental differences between them. China gets a delay on additional tariffs, while the US gets greater purchases of agriculture goods while retaining leverage to push for more structural changes to the economy.
“Neither side got their maximum demands and it’s not the first time in US-China relations that both sides claim victory,” said Michael Pillsbury, a senior fellow at the Hudson Institute and a defence official under presidents including Ronald Reagan and George W. Bush. “Both sides avoided the worst-case scenario.”
China needs to buy soybeans and industrial goods from somewhere, so it won’t add to their import bill assuming they are just switching purchases from elsewhere, according to Tom Orlik of Bloomberg Economics.
“They have a reprieve on the tariff increase at no or at least little cost,” Orlik said.
The meeting ran longer than scheduled, ending after more than two hours. A person who wasn’t in the room for the dinner but helped with the preparations said afterward that it was encouraging that the meeting went long than scheduled, adding that US signals to reform the World Trade Organisation may have stepped up the pressure on China to cooperate.
At the start of the dinner, Trump struck an optimistic note.
“My relationship is very special, the relationship that I have with President Xi,” Trump said as the two men were seated. “This is going to be a very primary reason why we are probably going to be ending up getting something that will be good for China and good for the United States.”
Through a translator, Xi said that “only with cooperation between us can we serve the interest of global peace and prosperity and that is why I look forward to this meeting.”
The meeting was the first face-to-face encounter between the leaders in more than a year, a period that saw Trump impose tariffs on billions of dollars in Chinese imports in a bid to force Beijing to halt trade practices the US considers unfair. Trump had warned that a disappointing outcome could prompt more US tariffs.
Adding to that uncertainty was the roster of senior advisers joining Trump — including China hawk Peter Navarro, who penned the book “Death By China” and heads a special trade policy office within the White House. The last time Navarro met with Chinese officials, he started a shouting match with Treasury Secretary Steven Mnuchin while still in Beijing, and his presence on Saturday risks sowing friction with China.
Mnuchin, along with Kudlow, have sought to strike a more conciliatory approach toward China. The Treasury chief attended the dinner, too.
In other key results from the talks, the US promised to uphold the one-China policy, Wang said, while China threw its support behind further meetings between Trump and North Korean leader Kim Jong Un.
On Friday, Trump projected optimism that his “big meeting” with Xi would be fruitful, saying that he saw “some good signs” as his staff continued to negotiate with Chinese officials.
Any easing of tensions on trade could ease gains in the US dollar and boost riskier assets including emerging-market currencies and stocks, though investors and analysts agree that the US and China are trying to fix a long-term problem that cannot be solved in one dinner.
US and Chinese officials had worked for weeks on the contours of a possible deal for the two leaders to announce, including an agreement that could set a road map for talks to follow.
“Both sides believe that the principled agreement reached between the two presidents has effectively prevented the further expansion of economic frictions between the two countries,” said Wang Yi, China’s foreign minister.
In addition to trade, Trump said as the dinner started that he would bring up his concerns that China isn’t doing enough to halt the flow into the US of the synthetic opioid fentanyl and related chemicals, which have been linked to an epidemic of overdose deaths.
Fentanyl exporters have skirted Chinese laws by shifting to analogues, or molecules that have similar effects on the body, but don’t fall under bans the country has imposed on fentanyl itself, according to a report released last month by a US commission established by Congress. China has been slow to add new categories to the list of prohibited substances, report said.
In her post dinner statement, Sanders said that China had agreed to designate fentanyl as a controlled substance, exposed its sellers to the maximum penalty under Chinese law.
The dinner was moved up by about an hour after US leader’s schedule opened up on Saturday. He had already cancelled a planned meeting with Russian President Vladimir Putin, and then scrapped an afternoon press conference out of respect for the family of former US President George H.W. Bush, who died late Friday night.
Other attendees on the US side included Secretary of State Michael Pompeo, US Trade Representative Robert Lighthizer, National Security Adviser John Bolton and Trump’s son-in-law, Jared Kushner, who’s a senior adviser to the president.
Trump and Xi dined on some local specialities, including grilled sirloin with red onions, goat ricotta, and dates. For the first course, the attendees had a seasonal vegetable salad with a basil mayonnaise dressing, and for dessert, they were served caramel rolled pancakes with crispy chocolate and fresh cream, according to the White House.
Accompanying wines included a 2009 Catena Zapata Adrianna White Stones Chardonnay, and a 2014 Catena Zapata Nicolas Malbec.