Washington and Beijing finally have a trade truce — with plans to keep negotiating while the existing 25 percent tariffs on Chinese-made goods stay in place.
“We have agreed to a very large Phase One Deal with China,” said President Trump on Twitter Friday. “They have agreed to many structural changes and massive purchases of Agricultural Product, Energy and Manufactured Goods, plus much more. The 25% Tariffs will remain as is, with 7 1/2% put on much of the remainder.…The Penalty Tariffs set for December 15th will not be charged because of the fact that we made the deal. We will begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 Election. This is an amazing deal for all. Thank you!”
That takes some pressure off fashion producers, cutting in half the 15 percent tariffs Trump imposed in September on $120 billion of Chinese-made products, including many apparel categories. Still in place are 25 percent tariffs imposed on $250 billion in Chinese imports and other trade restrictions put up on both sides as trade hostilities rose.
A report on Xinhua, the official Chinese news service, confirmed, “China and the United States have agreed on the text of a phase one economic and trade agreement based on the principle of equality and mutual respect.”
There were signs Thursday that the two sides reached a deal that Trump approved, but China stayed mum, casting some initial doubts given the long and winding trade war that has been punctuated by near deals that fell apart at the last minute and the escalated tensions.
U.S. trade representative Robert Lighthizer said the deal “achieves meaningful, fully enforceable structural changes and begins rebalancing the U.S.-China trade relationship.”
The USTR’s office said the deal requires “structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.”
Investors were muted in their reaction, with the Dow Jones Industrial Average closing up just 3.33 points to 28,135.38 Friday, although the trade crowd did get fired up.
Rick Helfenbein, president and chief executive officer of the American Apparel & Footwear Association, welcomed the phase one deal and said “the end of the trade war may be in sight.”
“However, while this is a step in the right direction, it means American businesses, American consumers and American workers are still being hammered — at an unacceptably high level — by tariffs imposed on U.S. imports from China and, in retaliation, by China’s imports from the U.S. The administration has imposed one of the largest consumer and manufacturing taxes in American history, most of which remains in place following this agreement.”
On the other side of the supply chain, Kim Glas, president and ceo of the National Council of Textile Organizations, noted duties on textiles from China will remain at 25 percent while the 15 percent tariffs on finished products have been cut in half.
“NCTO has strongly supported applying tariffs on finished products as key negotiating leverage since textile and apparel production is a key pillar of the Chinese manufacturing economy,” Glas said.
“Today’s announcement reduces tariffs on finished products at the same time it keeps tariffs in place on key inputs that aren’t made in the U.S. such as certain dyes, chemicals and textile machinery,” she said. “We believe a wiser approach would be to maintain penalty duties on finished Chinese products while reducing 301 duties on key inputs that are used by U.S. manufacturers. Doing so will maintain maximum leverage on China to reach a more comprehensive and enforceable intellectual property agreement, while reducing input costs for U.S. manufacturers.”
The agreement — while it falls shorts of the hopes and desires of fashion importers who would like to see tariffs eliminated and the sooner the better — does bring about much more stability to supply chains. Brands will be able to map out just what their costs are going to be and, even if they don’t like the added burdens, they can plan around them.
With the threat of increased tariffs apparently eliminated — since Trump is, if anything, unpredictable — the wound has been cauterized and now surgery to correct the underlying issues can be attempted.
But with the House of Representatives set to vote on two articles of impeachment against Trump next week and the election set to hit full swing next year, there will be plenty on the docket.