International Trade Update: US-China Trade War

Last month, trade delegations from China and the United States continued bilateral meetings in the U.S. capitol, and talk in Washington suddenly turned toward trade and friendly relations
between these two great countries. Before long, the chief negotiators from the U.S. (Secretary of Treasury Steven Mnuchin and U.S. Trade Representative Robert Lighthizer) and China (Vice-Premier Liu He) were headed to the White House for a meeting before the Chinese delegation returned to Beijing. In an almost anticlimactic announcement, after 18 months of uneasy negotiations, it was announced that the U.S. and China had reached an unpapered accord over many of the issues that separated the countries, including agricultural purchases, intellectual property, currency and foreign exchange, technology transfer and a lesser-known area of concern for the U.S., financial services.

The U.S. has outlined the key issues upon which the parties had reached an agreement in principle, and indicated that phase 1 of the deal would be finalized in writing over the next three to five weeks, and could be agreed upon as early as mid-November when the presidents possibly meet in Chile for a previously scheduled economic summit. The remaining issues could be dealt with in phase 2 or even a phase 3, but neither side seemed willing to commit to the details in any additional phases. This is what we do know about the deal reached in mid-October:

China has committed to increase its agricultural purchases to historic levels of $40-$50 billion.
Intellectual property and technology transfer concerns previously leveled by the U.S. would be worked out in some regard in phase 1, but would likely not be finalized until phase 2. This suggests that more concessions are required by the China side, perhaps in exchange for the alteration, reduction or even removal of the ongoing additional tariffs on Chinese goods identified in tranches 1–3 (also known as the Section 301 tariffs) that have been in effect since July 2018. It also suggests that one of the main planks for U.S. tariffs to begin with has not been resolved and remains thorny — an area to certainly watch as the parties try to finalize a comprehensive trade deal.
Tariffs on $250 billion of Chinese goods that were scheduled to increase from 25 percent to 30 percent will remain at 25 percent pending completion of the recent agreement. Tariffs that were to go into effect in December remain on the table but will likely be further delayed — or never be implemented — if the parties formalize their agreement.
Currency and foreign exchange concerns are also in the deal, but no details were released. The U.S. previously designated China a “currency manipulator” and Mnuchin indicated separately that this designation may be removed upon a final agreement.
U.S. financial service companies would have expanded opportunities in China, but details on this aspect of the deal were sparse as well.
Reporters inquired about mechanisms of enforcement, Huawei, immigration and a host of other potential issues but, again, the delegations deferred on details, except to mention that
Huawei would be dealt with separately.

Whatever the motivations of the trading parties, this recent announcement, while still not documented in a formal agreement, is an historic and significant shift toward a comprehensive trade deal. To avoid the problems of the past, it will be critical that the parties seize the momentum and avoid political pressures from their respective constituents to bring this deal to fruition. Geopolitical events such as those involving Hong Kong, Taiwan, the South China Sea, even the NBA, pose obstacles to a final deal as time ticks on; therefore, like all settlements, it will be incumbent for the parties to complete the deal before their enthusiasm is chilled by other forces. We will continue to update our readers as developments occur.

Mark Heusel is an experienced commercial business attorney at Dickinson Wright and serves as the chair of the firm’s China Practice Group.