On Friday afternoon, after a White House meeting with Chinese Vice Premier Liu He, President Donald Trump announced to reporters that the United States and China had agreed in principle on an initial phase of a trade accord.
According to published reports, trade negotiations are to be broken into three separate phases. The President’s announcement indicated substantial agreement to phase one.
China reportedly agreed to purchase between $40 billion to $50 billion in U.S. agricultural products with a commitment to open international financial services. In turn, the United States would hold-off on a new round of tariffs scheduled next week. Still unclear is whether a further tranche of tariffs on predominately consumer goods, scheduled to take effect in mid-December will be postponed.
The phase one round is expected to be finalized in a three to five-week time period.
The news which came in the last hour of New York Stock Exchange trading caused the Dow to spike 500 points only to give-up 200 of those points in the last minutes. The pull back reportedly came on discovery of no specific timeline for the removal of existing tariffs.
As with much of the Trump Administration’s trade negotiation actions, yesterday’s announcement appears to be more political than substantive. With little specifics, ambiguity is the likely descriptor. The 2020 Presidential election cycle kicks into higher gear in January and the Administration likely needed to appease impacted U.S. farmers, who helped to elect Trump in the prior election.
Overall, this latest news should be of little comfort to the bulk of multi-industry supply chain teams, in that by many accounts, it amounts to a limited truce, at best. Once again, a politically focused set of objectives overrides broader business and economic objectives.
With little substance and timetable specifics related to subsequent phases, businesses and the respective supply chain management teams can only assume that tariff levels will continue into 2020. As noted in our prior commentary reflecting on any substantial resolution of the U.S. and China trade talks: it might be better to home in on the intuition and gut perspectives of seasoned key insiders, as opposed to politicians.
Despite yesterday’s development, trade conflicts will indeed present a very challenging year to come.
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