Section 301 list 3 tariffs on Chinese imports, which were set to increase from 10% to 25% effective January 1, 2019, will now remain at 10% for an additional 90 days as a result of fruitful talks between Chinese President Xi Jingping and President Trump at the G20 summit in Buenos Aires this past Saturday, December 1st.

The catalyst for this brief truce appears to be China’s willingness to more seriously examine and appropriately amend its trading practices. As part of this 90-day deferral, China has agreed to significantly increase its purchase of U.S. agricultural and industrial goods, though specific quantities have yet to be defined. They have also agreed “ to sort out and manage fentanyl substances in categories, and to start the adjustment of relevant laws and regulations.”

Under the agreement, China will also commence negotiations with the U.S. that will address its longstanding practices related to the transfer of intellectual property and cybersecurity. The U.S. views China’s current practices as both a threat to national security and a threat to economic prosperity.

While this weekend’s news is a positive step forward, here are a few aspects of the trade war to keep in mind:

  • President Trump has already made numerous comments implying that the duties on list 3 could easily escalate to 25% should China not make enough progress during this 90 day moratorium. While President Trump’s statements could goad China into quicker action, it doesn’t bode well that many of the milestones China would need to achieve over the next 90 days are still undefined.
  • Despite the brief reprieve for list 3, lists 1 and 2 are still very much active with the continued imposition of 25% duties on affected goods imported from China. At this time, it is unclear if tariffs on list 1 and 2 items will ever be addressed in future talks.
  • Although hundreds of thousands of U.S. importers filed exclusions with the U.S. Trade Representative (USTR) and provided comments about how these additional tariffs could cause substantial harm to their businesses, no change came about until President Trump was satisfied that he had gotten China to agree to altered trade practices.  This suggests President Trump is only accepting China’s acquiescence as a means of currency in this trade war.
  • This truce follows directly on the heels of a USTR report which stated that China had not made any progress in regard to technology transfer and intellectual property rights, and in fact had taken “further unreasonable actions in recent months.” If there is truth to the USTR’s statement, then it will likely be very hard for China to make the kind of progress sought by President Trump in a 90-day window.

Overall, we believe hopeful optimism is the only route forward, but remain wary of suggestions that long-term peace has been established.

Shapiro will continue to monitor the situation and provide updates as they become available.