A Tariffs Truce for the Holidays? - Modern Distribution Management

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A Tariffs Truce for the Holidays?

Optimism has been tempered by a sense that the fragile peace may not last.

Last Saturday, December 1st, marked the beginning of a temporary truce in the U.S./China trade war. The agreement, reached at the conclusion of the G20 summit in Buenos Aires, leaves current American tariffs in place while China resumes buying American energy and agricultural products. Both parties also agreed not to impose additional tariffs for 90 days.

The agreement is a sign of China’s willingness to negotiate while the current U.S. tariffs remain in place. Prior to the meeting, China had insisted on immediate repeal of all tariffs as part of any deal. It also could indicate that both sides are open to a more permanent deal. The cease-fire leaves American tariffs in place on $250 billion in Chinese goods but removes President Trump’s threat to increase tariffs on $200 billion of those goods from 10 to 25 percent in January and to impose tariffs on all Chinese imports. 

In a statement, China’s foreign ministry called Saturday’s meeting “very successful,” and added, “The two sides proposed a series of constructive plans on how to properly resolve existing differences and problems.”

Concerns about an economic trade war were calmed slightly after the agreement was announced. Asian markets rose earlier this week and the Dow Jones Industrial Average futures were up 440 points, or 1.72 percent, on Monday morning. Less positively, however, the President’s choice of Robert Lighthizer, a veteran trade negotiator skeptical of China, to negotiate with Beijing has many thinking the truce will be as temporary as Yuletide cheer. Lighthizer has advised Trump to use tariffs as a punishment to force Beijing into a deal. More moderate advisers, including Steven Mnuchin, the Treasury Secretary who led previous unsuccessful negotiations with the Chinese, have counseled the president to avoid a trade war.

Another discouraging sign was the markedly different way the two countries announced the agreement. While the U.S. emphasized the 90-day window it has set for trade negotiations, China made no mention of it in statements. The White House also said that China had agreed to “negotiate immediately on forced technology transfer, intellectual property protection, non-tariff barriers and cyber theft.” In contrast, statements from China did not mention intellectual property and said only that the two countries would “work together to reach a consensus on trade issues.”

Most analysts are looking for some type of truce be struck as both countries have begun to struggle with signs of economic weakening. China’s debt-heavy economy is slowing more than previously expected and there are areas of weakness in the U.S. as the effects of Trump’s tax cuts and spending increases show signs of tapering. The stock market has erased almost all of its 2018 gains amid trade and economic turbulence.

For more on how tariffs have been affecting the distribution industry, read MDM's recent Premium articles, Managing Tariffs and Tariffs Impact Still Mixed.

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