China expects US Dec 15 tariffs to be delayed

Washington

CHINESE officials expect US President Donald Trump to delay a threatened tariff increase set for Sunday, giving more time to negotiate an interim trade deal that both sides continue to insist is close to fruition, despite a series of missed deadlines, according to people familiar with the discussions.

The two sides, staying in almost daily contact, have also come closer to an agreement on scaling back the tariffs already in place.

But rather than removing or rolling back existing levies, the focus has been on reducing the rate of the tariffs already in effect, according to officials and other people familiar with the talks.

The Trump administration has so far sent conflicting signals on their willingness to agree to a delay.

Late on Tuesday, White House Trade Adviser Peter Navarro said he had no evidence that the tariffs set to take effect on Dec 15 on a list, comprising some US$160 billion of imports from China including consumer items like smartphones and toys, won't take effect.

"It's the President's decision," he said. "I've got no indication that he's going to do anything other than have a great deal and put the tariffs on."

That came a day after US Agriculture Secretary Sonny Perdue said that he believed there would be "some backing away" from the new wave of levies.

People familiar with the discussions say Mr Trump was expected to meet with his trade team on Thursday as discussions continue over a potential delay.

The US has added a 25 per cent duty on about US$250 billion of Chinese products and a 15 per cent levy on another US$110 billion of its imports over the course of a 20-month trade war.

Discussions now are focused on reducing those rates by as much as half as part of a Phase One agreement that would relax tensions and pave the way for further talks.

Beijing sees delaying that increase on imported consumer goods as allowing the talks to continue on the unfinished items in Phase One of the accord, two officials said on condition on anonymity because the conversations are private.

US Commerce Secretary Wilbur Ross told the Fox Business Network on Tuesday that getting the right deal was more important than whether it came before or after Dec 15.

"Every day that goes by, we are in a better negotiating position," he said, adding that most of the tougher issues would be addressed in later phases of negotiations.

Larry Kudlow, the head of the White House National Economic Council, warned that the tariff increase remains in play for now, although he said Mr Trump was encouraged by the progress he is seeing in the talks.

The ongoing discussions illustrate the difficulties in reaching an accord that Mr Trump said more than eight weeks ago was basically done and would take three to five weeks to put on paper.

The "Phase One" deal is expected to be built largely around a significant increase in Chinese agricultural purchases in exchange for a reduction in tariffs by the US.

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 long-standing 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.

Beyond the discussions of tariffs, the most contentious issue in the talks currently is the US insistence that the Chinese commit to a strict schedule for an increase in agricultural purchases that Mr Trump has touted as the biggest component of his Phase One deal.

US farmers have been one of the constituencies hit hardest by Mr Trump's trade war with China, with the administration rolling out some US$28 billion in farm aid over the past two years to offset losses due to lost exports of soybeans and other commodities.

The US is wary of China's history of not living up to its promises to previous administrations and wants to lock the Asian nation into a firm schedule of purchases.

China, which is under pressure from other trading partners and has diversified many of its commodity purchases away from the US as a result of the trade war, insists that any buying commitments should be market-based and not conflict with its obligations under World Trade Organisation rules.

A tariff reprieve would lift confidence in the global economy and signal that the two sides are determined to push through a deal.

But the drift in the talks since the narrow phase one deal was first announced Oct 11 by Mr Trump has also highlighted the sensitivity of the discussions on both sides at a time that the broader relationship is deteriorating and hawks on both sides see an existential rivalry developing.

"If the tariff on Dec 15 can be postponed, there will be a better chance for a deal. If the tariff is implemented, your ammunition will be used up soon. China will surely retaliate. It will be difficult to negotiate next year," former Chinese commerce minister Chen Deming told a conference in New York on Tuesday.

US Senator Marco Rubio, one of the most vocal China hawks in Congress, said that Beijing's goal to surpass the US as a military and economic power remained a "fundamental challenge" that "will not simply be solved by some future trade agreement".

"The market may say short-term profits justify adhering to the requirements China places on our companies. But policymakers must take into account that long-term surrendering our productive capacity to China is reckless," Mr Rubio told an audience at the National Defence University in Washington.

Analysts say the slow progress in the trade talks illustrates that broader suspicion and how the relationship is facing a new reality.

Any delay in the Dec 15 tariffs without a phase-one deal in place would be "a stark admission that the two sides can't find agreement on even the narrowest of terms, which stems from both sides believing they occupy the high ground," said Jude Blanchette, a China expert at the Centre for Strategic and International Studies in Washington. BLOOMBERG