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Phase 1 China deal would include tariff rollback, U.S. official agrees

Larry Kudlow
White House economic advisor Larry Kudlow, shown Oct. 7, confirmed Thursday that U.S.-China trade negotiations have advanced.
(Evan Vucci / Associated Press)

The U.S. and China have agreed to roll back tariffs on each other’s goods in phases as they work toward a deal, members of both sides said.

“In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement,” China’s Ministry of Commerce spokesman Gao Feng said Thursday.

White House economic advisor Larry Kudlow later confirmed the advance in negotiations. “If there’s a Phase 1 trade deal, there are going to be tariff agreements and concessions,” he told Bloomberg.

Kellyanne Conway, senior White House advisor, also said Thursday that President Trump is anxious to sign the deal. The negotiations are ongoing and a time or place for any signing of a pact is yet to be determined.

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If the two countries “reach a Phase 1 deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement,” Gao said.

It’s not clear that such an understanding has necessarily been reached: The Wall Street Journal reported that according to two unnamed people familiar with the Trump administration’s thinking, there’s no agreement on a formal plan to roll back tariffs.

An agreement could help provide a road map to a deal de-escalating the trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs imposed by Trump, which by now apply to the majority of its exports to the United States.

Stocks rallied, with Hong Kong’s Hang Seng Index climbing 0.6%. European and U.S. shares rose. The yuan strengthened.

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“The question right now is what the two sides have actually agreed on — the market’s focus has shifted to how the U.S. may react to China’s tariff remarks tonight or in coming days,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “Investors are still cautious.”

The two sides continue to negotiate over where and when a Phase 1 deal would be signed. Gao said he had no further information on the location or timing.

U.S. locations for a meeting between Trump and Chinese President Xi Jinping that had been proposed by the White House, including Iowa and Alaska, have been ruled out, according to a person familiar with the matter. Locations in Asia and Europe are now being considered instead, the person said, asking not to be identified because the discussions weren’t public.

On Thursday, China sentenced three nationals to maximum punishments for smuggling fentanyl to the United States. That was one of its highest-profile moves yet against the illicit flow of opioids that Trump has made a bone of contention in broader trade talks between Washington and Beijing.

In another move, China’s General Administration of Customs and its Ministry of Agriculture are studying the removal of curbs on U.S. poultry imports, state-run news agency Xinhua reported without providing more details.

Trump administration officials in recent days have expressed optimism that the first phase of a comprehensive trade deal might come together this month, helping boost equity markets to records this week.

Given repeated reversals in the trade war, which has gone on more than a year, investors are waiting for further confirmation of progress between the two sides.

“I am skeptical on how fast the progress will be,” said Iris Pang, economist with ING Bank in Hong Kong. “How fast the rollback will be is critical to get material and long-lasting positive sentiment for the market as well as for both economies.”


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