U.S. and China Discuss Rolling Back Tariffs
President Trump has invoked a trade war between the U.S. and China, resulting in potential economic damage to both countries. After Trump imposed tariffs on goods imported from China, China retaliated in kind, driving up the prices of consumer goods. Now, the two countries have agreed in an initial trade deal to roll back some of the tariffs each country has opposed on the other, pending finalization of their agreement. This development represents a reversal of the Trump administration’s position on tariffs, which they instituted in the first place, forcing China to retaliate. If the deal goes through, the price of consumer goods could decrease, boosting an economy which by traditional measures is already quite healthy.
Though Trump has canceled a planned tariff increase, he has continued to threaten Beijing with additional tariffs if they don’t comply with America’s terms. The battle between Trump and Xi Jinping has lasted for 19 months so far, and has caused pain for businesses, consumers, and investors in both countries. Following this news, stocks soared, as investors anticipate an end to the protracted and arguably unnecessary trade dispute. According to Gao Feng, a spokesman for China’s Commerce Ministry, the two countries have discussed resolving their differences over the past two sides, and have agreed to cancel tariffs by stages. However, a timeline has not yet been publicly established.
As the reality of a deal between the two countries becomes increasingly likely, markets have reacted with optimism, as the S&P 500 rose to more than 3,090, approaching a record closing high. The companies most positively affected by the news are ones that have close ties to Chinese manufacturers and retailers. Despite the positive reaction in the markets, however, other sectors of the economy continue to struggle. In particular, the trade war with China has negatively impacted farm belt states like Iowa, Kansas, and Nebraska, where economic growth has slowed considerably. Though the Trump administration claims that Americans do not experience the effects of tariffs, businesses and farmers disagree.
This is not the first time that the United States and China seemed close to reaching a deal to end the trade war.
As a result of Trump’s presidency, American tariffs now apply to more than two-thirds of imports from China, whereas Chinese tariffs affect 58 percent of their imported goods from America. Tariffs are paid by consumers in the countries imposing the tariffs, making the trade war destructive on both sides, leading economists to issue warnings about the long-term impacts of ongoing tariffs. The imposition of tariffs on Chinese imports has long been considered a bad idea by experts, who are now vindicated by the Trump administration’s reversal of policy under significant public pressure.
Issues unrelated to tariffs factor into the negotiations. American officials want China to take more aggressive action on protecting American intellectual property rights, for instance and contend that the ultimate decision is up to Trump. Additionally, the United States wants China to encourage more foreign investment and purchase more goods and services from abroad. This preliminary agreement suggests that China will be willing to make these concessions, but the final details have yet to be ironed out.
This is not the first time that the United States and China seemed close to reaching a deal to end the trade war. In May, the two countries agreed upon a resolution to end the trade war, which included concessions from China to change some of their business and legal practices. President Jinping even gave a speech celebrating the achievement. However, when a draft agreement was sense to the United States, significant changes had been made to the plan, leading Trump to accuse Beijing of reneging on its commitments. The changes to the draft agreement, which included the removal of promises to change domestic laws, were thought to have been personally made by Jinping himself. Only time will tell whether this new agreement suffers the same fate.
Tyler Olhorst is a Contributing Editor at The National Digest based in New York. You can reach him at inquiries@thenationaldigest.com.
