Immediate Cuts to Tariffs

The Wall Street Journal reports Trump Meets With Xi, Declares Immediate Cut to Tariffs

Quick Summary

• The U.S. is lowering tariffs on Chinese goods to 10% from 20% in exchange for China’s cooperation on fentanyl precursor chemicals.
• The U.S. and China discussed a framework to reduce trade tensions, including China’s commitment to purchase U.S. farm products.
• Trump said he thought that the two countries would be able to sign a trade deal “pretty soon.”

President Trump and Chinese leader Xi Jinping emerged from their first face-to-face meeting in six years with a temporary truce in the bruising trade fight between the two superpowers.

Their agreement lowers immediate tensions between the U.S. and China, which have been locked for months in a bitter struggle over trade and technology that has hurt both their economies.

The agreement includes a reduction in stiff U.S. tariffs on Chinese goods in exchange for a pledge by China to crack down on the trade in the chemicals used to produce fentanyl.

China also promised to ease the exports of rare earths—minerals that Western manufacturers rely on to make a range of goods. And Beijing promised to buy “tremendous amounts” of American soybeans, said Trump.

While the detente provides relief to both sides, it does little to address the fundamental divergence between two superpowers whose economies are decoupling in many sectors and who are racing for supremacy in areas such as artificial intelligence.  

In comments to reporters on his way back to the U.S. from South Korea, Trump was effusive about the meeting.

“Overall, I guess on the scale of from zero to 10, with 10 being the best, I would say the meeting was a 12,” he said.

The actual numbers the two agreed on were more modest. 

The U.S. also agreed to put on hold for one year a September move to apply export restrictions to certain subsidiaries of already blacklisted entities, the Chinese Commerce Ministry said. And both sides placed a one-year pause on reciprocal port fees on each other’s vessels, which comes on the heels of South Korea agreeing to invest $150 billion in American shipbuilding.

Speaking on Air Force One, Trump said he thinks the U.S. and China will be able to sign a trade deal “pretty soon,” and that they didn’t have too many stumbling blocks left.

Some trade analysts were skeptical. Describing Thursday’s agreements as marginal, William Bratton, an analyst at BNP Paribas Securities, wrote that they don’t “represent a ‘grand bargain’ or a large-scale reset of the relationship.”

Xi appeared to come out of the meeting with a strong hand, analysts said, particularly on rare earths.  

China began implementing strict export controls on rare earths in April. In October, Beijing angered the Trump administration by further enhancing restrictions on the export of the minerals, including increasing the number of controlled rare-earth elements.

While the newer rare-earth export rules are likely to be delayed, many industry watchers noted that China appears set to maintain the export-control procedures it introduced in the spring.

That would preserve Beijing’s ability to punish the U.S. economy by denying export licenses to a swath of American companies that rely on rare earths. 

On fentanyl, much will depend on the actions China takes next. The U.S. has pressed China for years to do more to control the export of chemicals used to make the drug, a synthetic opioid blamed for hundreds of thousands of overdose deaths in the U.S.

More-stringent regulation of the chemicals likely won’t be enough to solve the crisis because Chinese producers are adept at slightly altering the chemistry of precursors to get around the rules.

Trump and Xi last met in person in 2019, when they held an 80-minute lunch on the sidelines of a Group of 20 meeting in Osaka, Japan, and agreed to a cease-fire in trade hostilities. 

A “Phase One” trade deal signed in early 2020 addressed neither of those points, instead obligating China to buy more soybeans from American farmers—something Beijing largely failed to fulfill. A Phase Two never materialized.

Precisely as Expected

On October 28, I made what I consider to be the easiest call of the month: Trump’s Big China Deal Looks More Like an Uneasy Truce

Both sides will announce a win. But no key issues will be resolved.

Now What?

Hooray, China will buy more soybeans, loosen export restrictions on rare earths, and pledge to do more about fentanyl.

In return, Trump will not do 100 Percent tariffs and will roll back some of the so-called fentanyl tariffs.

Since April, there have been about seven major tit-for-tat Trump escalations with China, soon followed by Trump Tacos when China retaliated.

If the above outline holds, congratulations! Things will be back to where they roughly were in March.

Q: Since both Trump and Xi are liars, what do we really have?
A: The answer is an uneasy truce.

There may be other agreements but will Xi honor them? Trump?

No key items will be addressed but China will buy more soybeans, at least for a while, so Trump will brag. He will fail to recall that it was his actions that caused China to stop buying soybeans.

This is a win-win from where we were a week ago, but a big pile of nothing compared to where we were earlier this year.

This is indeed a win-win. I am always happy to see tariffs reduced.

But what did Trump really get out of all of this besides nothing?

Every time Trump escalated tariffs, China retaliated with force. Now we are back to roughly where things were in March (except US farmers lost about 6 months of Soybean exports).

12 out of 10? Please be serious.

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