US, China Agree On Tentative Phase 1 Trade Deal, Wait For Trump’s OK

U.S. and Chinese trade negotiators have reached an agreement in principle on the terms of a phase one trade deal between the two economic giants. The deal now is contingent on President Donald Trump’s approval.

The agreement includes terms such as a postponement of a new round of tariffs that were due to be imposed on $160 billion of Chinese goods Sunday, a rollback of some existing tariffs and a vow by China to purchase more U.S. agricultural products.

Moreover, the Chinese would commit to help prevent intellectual property theft while both parties promise to stop manipulating their currencies.

"Trade team from both sides are maintaining close communications," Gao Feng, spokesman at China's Commerce Ministry, said Thursday.

Bloomberg reported trade officials met with Trump Thursday afternoon to discuss the agreement and the White House could make a formal announcement by the end of the day.

Early Thursday, Trump tweeted a trade deal was “very close.” “They want it, and so do we!” he tweeted.

The Wall Street Journal reported earlier Thursday U.S. negotiators offered to cut existing tariffs -- which cover about $360 billion of Chinese goods -- by 50%.

The U.S. is also willing to cancel the next round of China tariffs, planned to take effect on $156 billion of Chinese goods on Sunday, the report said.

“The outcome of U.S.-China trade talks will be a key determinant of the trajectory for 2020 growth,” said Tom Orlik, chief economist at Bloomberg. “At one extreme, a deal that takes tariffs back to May 2019 levels, and provides certainty that the truce will hold, could deliver a 0.6% boost to global [gross domestic product]. At the other, a breakdown in talks would mean the trade drag extends into the year ahead.”

The tentative pact with China came only a few days after Trump reached a deal with House Democrats on a trade agreement with Mexico and Canada.

Federal Reserve chairman Jerome Powell said Wednesday progress on major trade deals "would remove uncertainty and be a positive" for the U.S. economy.

"Delaying the imposition of tariffs into February or beyond would allow the president to weather the Senate impeachment trial and also take a victory lap to celebrate Senate passage of [Mexico-Canada trade deal]," said James Lucier, managing director at Capital Alpha Partners. "Both these developments would put the President in a stronger position for future trade talks."

Trump’s early morning tweet triggered buying on the stock market, sending equity indexes to new highs.

“At the end of the day, it all comes down to the final details and what gets agreed upon -- and that’s still to be determined,” say Mark Freeman, chief investment officer at Socorro Asset Management. “The market is expecting a phase one deal, that much is clear.”