US President Donald Trump speaks in Washington, DC, the US, December 12 2019. Picture: ZACH GIBSON/BLOOMBERG
US President Donald Trump speaks in Washington, DC, the US, December 12 2019. Picture: ZACH GIBSON/BLOOMBERG

Washington  — US President Donald Trump said on Thursday the US and China are “very close to signing a big” trade deal that is  expected to see him reduce existing tariffs and delay ones due to take effect on Sunday, sending stocks to new records.

“They want it, and so do we!” he tweeted five minutes after stocks opened in New York.

Trump is due to meet with key trade advisers later on Thursday at the White House, a person familiar with the negotiations said. His statement that the US wants a deal soon contrasted with remarks he made earlier in December that suggested he was willing to wait until after the 2020 elections in the US to sign a pact. The S&P 500 Index rallied to a record after Trump’s tweet, and the MSCI All-Country stock index surged to its first record since January 2018.

The US has added a 25% duty on about $250bn of Chinese products and a 15% levy on another $110bn of its imports over the course of a roughly 20-month trade war. Discussions now are focused on reducing those rates by as much as half, as part of a phase-one agreement Trump announced almost nine weeks ago.

A phase-one pact is expected to be built largely around a significant increase in Chinese agricultural purchases in exchange for the US delaying a new round of tariffs scheduled to take effect on December 15 and a reduction in existing levies on Chinese goods.

Officials have also said it will include Chinese commitments to do more to stop intellectual-property theft and an agreement by both sides not to manipulate their currencies. Put off for later discussions are knotty issues such as longstanding US complaints over the vast web of subsidies ranging from cheap electricity to low-cost loans that China has used to build its industrial might.

While the White House gathering may highlight continuing divisions over whether to hit Beijing with a new wave of tariffs, Trump’s tweet suggests he may be willing to delay escalation for now.

Officials from the world’s two biggest economies have been locked in negotiations on the phase-one deal since Trump announced it.

The new duties, which are due to go ahead on Sunday unless the administration signals otherwise, would hit about $160bn in consumer goods from China including smartphones and toys.

Before Thursday, Trump’s advisers have sent conflicting signals and stressed that he had not  made up his mind on the next steps. Advocates of delaying the tariff increase have argued that continued negotiations with Beijing will enable him to maintain a tough line with Beijing without the economic damage that more import taxes might bring.

The decision facing Trump highlights one dilemma he confronts going into the 2020 election: Whether to bet on an escalation of hostilities with China and the tariffs he is so fond of or to follow the advice of more market-orientated advisers and business leaders who argue a pause in the escalation would help a slowing US economy bounce back in an election year.

“The outcome of US-China trade talks will be a key determinant of the trajectory for 2020 growth. At one extreme, a deal that takes tariffs back to May 2019 levels, and provides certainty that the truce will hold, could deliver a 0.6% boost to global GDP. At the other, a breakdown in talks would mean the trade drag extends into the year ahead,” said Tom Orlik, chief economist at Bloomberg. 

Robert Lighthizer, the US trade representative leading the negotiations with China, is in a camp who sees progress in talks and wants them to continue without further escalation, according to people familiar with the discussions. That would set up a push to conclude the talks in January, possibly before a state of the union address to Congress by Trump.

With assistance from Saleha Mohsin and Jennifer Jacobs.

Bloomberg