The U.S. and China have officially agreed to a phase one deal on trade, which will cancel scheduled December tariffs—though some other existing tariffs will stay put.
In early tweets Friday, President Trump said, “We have agreed to a very large Phase One Deal with China. They have agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more. The 25% Tariffs will remain as is, with 7 ½% put on much of the remainder…”
Continuing in a separate tweet, he said, “…The Penalty Tariffs set for December 15th will not be charged because of the fact that we made the deal. We will begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 Election. This is an amazing deal for all. Thank you!”
An official statement from the United States Trade Representative (USTR) Friday called the agreement both “historic” and “enforceable,” noting that it requires structural reforms to China’s intellectual property and technology practices, plus changes to its agriculture buys, as the president noted, and adjustments to its currency and foreign exchange policies.
While USTR did say the U.S. has agreed to modify its Section 301 tariffs “in a significant way,” details were more vague.
“The United States will be maintaining 25 percent tariffs on approximately $250 billion of Chinese imports, along with 7.5 percent tariffs on approximately $120 billion of Chinese imports,” the USTR said.
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For China’s part, seeing the tariffs sloughed off of its exports was the critical component in securing the deal.
“China hopes the U.S. will fulfill its commitment,” Liao Min, China’s deputy director of the Central Commission for Financial and Economic Affairs, told the South China Morning Post. “Removing tariffs is the core concern of China.”
Though the cancellation of the List 4B tariffs saves apparel companies from paying new 15 percent duties on things like suits, T-shirts, sweaters, some home textiles and handbags, the American Apparel & Footwear Association (AAFA) says remaining tariffs will still damage the industry.
“The tariff relief included in the ‘Phase One’ deal is welcome and could be a sign that the end of the trade war may be in sight,” AAFA president and CEO Rick Helfenbein said following Trump’s announcement Friday. “However, while this is a step in the right direction, it means American businesses, American consumers, and American workers are still being hammered—at an unacceptably high level—by tariffs imposed on U.S. imports from China and, in retaliation, by China’s imports from the U.S.
“The administration has imposed one of the largest consumer and manufacturing taxes in American history, most of which remains in place following this agreement,” he added.
According to reports, the 25 percent tariffs will remain on the Tranche 3 target list, which hit sewing thread, yarns, textiles, handbags, travel goods and some apparel items. The halved duty rate is expected to impact the List 4A tariffs that took effect in September, bringing the tariff down from 15 percent to 7.5 percent.
Footwear will still be facing some punitive tariffs, too.
“As negotiations continue, we urge the administration to further eliminate the high footwear tariffs that are hurting American footwear companies and consumers,” Footwear Distributors and Retailers of America (FDRA) president and CEO Matt Priest said Friday.
The National Council of Textile Organizations (NCTO) would have preferred to retain some of the rolled back tariffs.
“Today’s announcement reduces tariffs on finished products at the same time it keeps tariffs in place on key inputs that aren’t made in the U.S. such as certain dyes, chemicals, and textile machinery. We believe a wiser approach would be to maintain penalty duties on finished Chinese products while reducing 301 duties on key inputs that are used by U.S. manufacturers,” NCTO said in a statement Friday.
“Doing so will maintain maximum leverage on China to reach a more comprehensive and enforceable intellectual property agreement, while reducing input costs for U.S. manufacturers,” NCTO added. “As domestic textile companies fight to compete with China and their illegal trade practices, it is important that U.S. manufacturers should be the first to see penalty duties removed on inputs not made in the United States.”
Depending on the perspective, the duty break ahead of the holiday came as either a welcome gift or a dreaded lump of coal.
“Rising costs are already working their way through supply chains and they will still have a negative impact going into next year,” Helfenbein said. “The trade war is a self-inflicted wound that has caused a lot of pain for America. The sooner these tariffs are eliminated, the better and we won’t stop pressing our case until this happens.”