BOFIT Viikkokatsaus / BOFIT Weekly Review 2019/51

Last Friday (Dec. 13), United States trade negotiators announced they had agreed with China on “phase one” trade treaty. While the text of the agreement was not released, the US trade representative’s office said the agreement covers intellectual property, technology transfers, agriculture, financial services, exchange rates, commitments to increased trade and dispute resolution. The agreement must still be finalised. No signing date has been announced and there are many uncertainties associated with the arrangement.

US negotiators said that China committed to purchasing US goods and services (industrial, agricultural, foodstuff and energy products) over the next two years in a total amount that exceeds China’s annual level of imports for those goods and services in 2017 by no less than $200 billion. China confirmed that the parties had reached an agreement, but had no comment on details nor on the additional purchases.

The immediate effect of the announcement was to head off more tariff hikes and further escalation in the trade war. The US had threatened another round of 15 % tariff hikes on December 15 that would apply to nearly all Chinese imports still not subject to punitive tariffs. China also refrained from implementing its earlier-announced punitive tariffs.

The US further declared that, on the basis of the agreement, it was reducing from 15 % to 7.5 % the punitive tariffs on Chinese goods imposed on September 1. The tariffs affect about a fifth (110 billion dollars) in US imports from China. If the agreement is signed immediately in January, the lower tariff rates could be in force at the earliest in February. Other punitive tariffs on Chinese goods and services, however, would remain in place at their current levels. Punitive tariffs will still apply to nearly 70 % of US imports from China. This share has been stable since September 1. With the possible tariff cuts in February, the US-based Peterson Institute for International Economics (PIIE) estimates that the average US tariff rate on Chinese goods will be 19 %, down from the current 21 %. Prior to the trade war, the average tariff was 3 %.

About 60 % of China’s US imports are subject to punitive tariffs. PIIE figures that China’s average import tariff on US goods is 21 %, up from 8 % before the trade war.

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