The deal is done, but the work’s not over.
President Trump and Chinese Vice Premier Liu He on Wednesday signed the phase one trade deal between U.S. and China, a formal gesture toward de-escalating the trade war that has simmered for more than a year and ratcheted up tariffs on some key fashion imports from China.
Retail lobbyists applauded the deal, but are looking for more tariff cuts.
“This deal provides the apparel and footwear industry with very limited tariff relief following the biggest tariff increase since the Great Depression,” said Stephen Lamar, president and chief executive officer of the American Apparel & Footwear Association. “All of our products that have been hurt by this trade war will continue to be hit — including 92 percent of the apparel, 53 percent of the footwear, 68 percent of the home textiles and all of the travel goods and accessories that are imported from China.”
And NRF president and ceo Matthew Shay said: “NRF strongly supports the administration’s efforts to address China’s unfair trading practices, but we hope this is the first step toward eliminating all of the tariffs imposed over the past two years. The trade war won’t be over until all of these tariffs are gone. We are glad to see the phase one deal signed, and resolution of phase two can’t come soon enough.”
The agreement, signed in a White House ceremony, envisions China spending more than $200 billion over the next few years on American goods, including in the areas of agriculture and energy, and implementing stronger intellectual property protections for American companies that have complained about Chinese counterfeits and forced technology transfers, Trump said. Under the deal, China agrees on steps involving the “protection of American ideas, trade secrets, patents and trademarks,” he said.
“Together, we are righting the wrongs of the past, and delivering a future of economic justice and certainty for American workers and farmers,” Trump said.
The truce was initially struck on Dec. 13, just two days before a new round of tariffs on Chinese imports were set to go into effect. The deal also eases tariffs that went into effect September on some apparel and goods important to the fashion industry, with the duties cut to 7.5 percent from 15 percent.
On Wednesday, Trump celebrated the phase one deal as the product of “tough, honest and open” negotiations.
Standing with Liu, Trump skated between prepared remarks and an improvised monologue light on details of the agreement, and heavy on praise for officials who worked on the deal, as well supporters. Trump lauded U.S. trade representative Robert Lighthizer, as well as the audience of Republican donors present, including real estate mogul Sheldon Adelson, and, at times, veered into acerbic tangents about the House vote Wednesday on a resolution on his impeachment.
The tariffs addressed by the phase one deal were part of a plan that the U.S. announced in August to impose additional duties on some $300 billion of Chinese goods, meant to take effect in two parts, first on Sept. 1 and then Dec. 15. Before that, 25 percent tariffs went into effect on more than $200 billion of Chinese goods. Those remain in effect. Phase two of the discussions could go on until after the presidential election in November.
The tariff wars have impacted producers in China, where exports were down by 25 percent, or $35 billion, in the first half of 2019, according to a U.N. report in November.
“To maintain healthy and steady growth of China-U.S. relations serves the interests of both countries, and requires efforts from both sides,” the vice premier said through a translator, relaying a message from Chinese President Xi Jinping who was not present at Wednesday’s ceremony. “In that spirit, I hope the U.S. side will treat fairly Chinese companies and their regular trade and investment activities…as it will help enhance mutual trust and cooperation between us.”
Over the past two years, retail insiders have generally observed the president’s trade war dictates on Twitter with a sense of anxiety and bemusement. At the NRF retail conference this week, some retail industry observers highlighted the effect of the uncertainty on retailer leadership and sourcing executives left reeling to adjust.
“The person who is in charge of sourcing kept feeling like a yo-yo, jumping around from country to country,” said Matthew Rubel of private equity firm MidOcean Partners, who is also on the board of Hudson’s Bay Co., during a panel at the NRF conference on Tuesday.
“That being said, the uncertainty of getting there will cause you, if you manage a supply chain, or work with a supplier, to have to have a more diversified supply chain,” he said. “So the complexity of the supply chain and trade is upon us, and is a cost. The good news is, that cost can be mitigated via technology.”
Wall Street investors were just glad to see more signs that the trade war was indeed calming down. The Dow Jones Industrial Average rose 0.3 percent for the day, closing at 29,030.22.
Overall, the deal represents a departure from free trade notions of Trump’s predecessors, to a more negotiated posture with other countries, said Alan Behr, who chairs the fashion practice at Phillips Nizer.
“The classic American-inspired example of a world economy is unfettered by tariffs, it’s free trade inside countries and between countries,” he said. “That works as long as everybody generally pays their workers the same, and the countries are not overly subsidizing their national businesses to compete unfairly with foreign businesses — and that’s why the [free trade] model is perceived not to work with China.”
The phase one agreement also targets what American companies argue is the intellectual property menace posed by Chinese counterfeits, by imposing more requirements on China in terms of border enforcement to stop counterfeits before they ship to the U.S.
The deal also requires more protections for goods with so-called “geographical indications,” which in the trade and intellectual property lexicon refers to goods named for their origins, like Champagne, the sparkling wine named for the French region.
“There’s an attempt made in this phase one to address this difficulty we’ve had with Chinese misappropriation of intellectual property, which is important to the clothing and fashion businesses, and the industrial processes by which they were made,” said Behr. “The intellectual property provisions should, in theory, help protect trademarks of American brands and American manufacturing technology and copyrights that are becoming more and more important in the protection of fashion.”
As for what’s next, the discussions could center around broader tariff reductions, particularly on raw materials, in exchange for other agreements from China, though it remains to be seen how much China is willing to concede, experts said.
The National Council of Textile Organization, the industry group representing U.S. textile companies raised those concerns by taking issue with the “last-in, first-out approach to the tariff reductions,” in the phase one deal which focused more on finished goods.
“In our sector, this means that the penalty 301 tariffs on finished apparel and sewn products — the areas where tariffs have the most potential to effect reforms in China while bolstering the Western Hemisphere supply chain — are cut in half, while U.S. manufacturers continue to face full tariffs on certain inputs and equipment not available domestically,” said Kim Glas, president and ceo of NCTO.