Leibowitz on Trade: Signs of Progress in U.S.-China Trade Negotiations?

List One ($34 billion of trade) became effective July 6, 2018. 

List Two ($16 billion) became effective Aug. 23, 2018.

List Three ($200 billion) became effective Sept. 24, 2018. Those tariffs started at 10 percent, but were increased to 25 percent in May 2019. The rates are scheduled to increase to 30 percent on Oct. 1, 2019.

List Four ($300 billion) became effective on Sept. 1, 2019, for about half of the products and Dec. 15, 2019, for the other half. Before Sept. 1, USTR increased the tariffs from 10 percent to 15 percent. 

On Sept. 20, USTR announced exclusions on more than 400 separate products on Lists One (310 items), Two (89 items) and Three (38 items). The 437 exclusions are by far the highest number of exclusions listed by USTR on any single day.

Only a few exclusions involved metal products, including narrowly described girders, pipes and supports. The exclusions must meet several very specific requirements. 

These exclusions benefit U.S. companies that purchase and use the imported items in manufacturing, distribution and retailing. All were granted based on exclusion requests filed by these companies. Unlike the steel and aluminum exclusions, however, these China trade exclusions may be utilized by any company that imports the products described. 

Clearly, the exclusions send a signal to U.S. companies that the tariff war may be closer to resolution. 

In addition to the large number of exclusions granted on Friday, China has granted some modest exclusions of its own from retaliatory tariffs. In addition, a significant purchase of soybeans was announced last week by China, a rare bit of good news for American agriculture in the midst of the trade war. 

A second-tier trade delegation from China was in Washington for talks last week. No details were reported, but both sides assessed the talks as constructive. A principals group (including USTR Robert Lighthizer and China Vice-Premier Liu He) will meet in Washington during the week of Oct. 7, based on current plans. A Chinese delegation was scheduled to visit farms in Montana and Nebraska as part of last week’s negotiations, but the farm visits were cancelled due to optics, based on what I have been told. China does not want to be seen to interfere in U.S. internal affairs, and insists that the U.S. also refrain from activities that could be construed as interference in domestic matters.

The exclusions may mollify some in the U.S. who complain that the trade war is hurting them by disrupting their supply chains without showing the prospect of meaningful changes in China’s actions. Progress is certainly slow.

President Trump said over the weekend that he does not want an “interim” deal, presumably to keep pressure on China to make major changes in their policies and practices involving intellectual property protection, technology transfer and restrictions on foreign investment. Things could well take a negative turn before there are concrete results on those difficult issues. 

Lewis Leibowitz

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