Trade war | US, China to tie tariff relief to failed deal from May

The near-deal between the U.S. and China that fell apart six months ago is now being used as the benchmark to decide how much tariffs should be rolled back in the initial phase of a broader trade agreement, people familiar with the talks said.
The two sides, who are locked in tough – perhaps final – negotiations on a phase-one pact, are discussing linking the size of tariff rollbacks to the preliminary terms set in that failed May deal, according to the people, two of whom said the White House is still debating the precise percentage internally. The Chinese have demanded that all tariffs imposed after May be removed immediately and then tariffs imposed before that be lifted gradually, according to one of the people.
The duties under discussion for a potential rollback include the initial tariffs on some $250 billion in Chinese goods that President Donald Trump imposed last year, according to two people. Some of his advisers had been pushing to keep those in place longer term, to ensure China lives up to its end of the bargain, but now are open to a partial relief in order to get the phase one deal signed.
With the economies of both countries – and, more broadly, across the globe – showing clear signs of softening under the weight of the tariffs, negotiators are under growing pressure to ink a deal, or at least part of it. But with thousands of products caught in the tariff tit-for-tat over the past year, the two sides have the complicated task of sorting through and deciding which goods get relief or not.
U.S. officials have differing views on how much phase one would cover and what portion of the tariffs the Trump administration should agree to roll back, two people familiar with the matter said. The internal figure under discussion ranges from around 35%, pushed by U.S. Trade Representative Robert Lighthizer to the 60% that Trump has said the deal encompasses, according to the people, who asked not to be named because the talks are private.
Once both countries have settled on a number, either the tariff rate could be lowered by the agreed-upon percentage or tariffs could be eliminated based on that figure.
A spokesman for Lighthizer didn’t respond to a request for comment and the White House declined to comment. The S&P 500 Index of U.S. stocks initially advanced Tuesday on the news but ended the day little changed.
Analysts say the first phase covers significantly less than what Trump has been promising publicly because it leaves on the table most of the thorny issues at the heart of the trade dispute. There’s also widespread skepticism on both sides that the countries would ever reach a second-phase agreement that would tackle structural reforms.
Trump, who calls phase one a “substantial” agreement, for weeks has been trying to sell the deal domestically and push back at criticism on the limited scope of the agreement.
“We will finish out the large Phase One part of the deal, then head directly into Phase Two,” he tweeted on Oct. 13.
The Trump administration has import taxes in place on some $360 billion in goods from China and has threatened to impose new levies on another $160 billion in products Dec. 15.
Shortly after the May talks collapsed and escalation followed, the U.S. had 25% duties on some $250 billion in imports.
The phase one deal, if finalized, would likely include the elimination of tariffs that went into effect in September and the additional batch that’s set to take effect in December, two of the people said. Bloomberg

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