President Donald Trump announced
on Friday he has reached a tentative trade deal with Chinese negotiators.

This deal, labeled “phase one” of possibly two or
three phases, is supposed to be finalized and signed next month when Trump and Chinese
President Xi Jinping meet in Santiago, Chile. 

As an immediate part of the deal, the White House is
suspending an increase of tariffs on $250 billion worth of imports from China
that would have gone into effect starting Oct. 15. The tariff rate on these
products will remain at 25% for now. 

The White House has decided it won’t make a decision whether
to suspend additional tariffs scheduled for Dec. 15 just yet. And there has
been no discussion about when negotiators plan to start lowering the tariffs
already levied on almost $400 billion worth of goods Americans buy from China. 

The removal of these tariffs should become a major part of
negotiations as Americans continue to pay billions more each month.  

According to Trump, China has also agreed to continue purchasing more U.S. agricultural products. Chinese purchases of U.S. agricultural products have been resuming as China’s farmers continue to battle an African swine flu and fall armyworm infestation that’s been destroying their pig and crop numbers. 

Treasury Secretary Steven Mnuchin clarified
that China will eventually buy between $40 to $50 billion worth of agricultural
products a year. 

While there is no text for phase one of a deal with China,
in principle, other parts of the deal will include addressing issues like
non-tariff barriers to U.S. agricultural exports to China, financial services
and market accessibly, intellectual property protection, stopping the transfer
of technology, and possibly an agreement on currency manipulation. 

Some of these issues will be covered in other phases as
well. 

Many of the specifics will need to be worked out over the
next month via working-level meetings. Not only will the legal text need to be
worked out, but implementation and enforcement measures will need to be
hammered out. 

Ideally, Trump and Xi will sign phase one on the sidelines
of the Asia-Pacific Economic Cooperation summit on Nov. 16-17 in Santiago,
Chile. 

Immediately afterward, negotiations for phase two will likely
begin and potentially lead to a suspension of the Dec. 15 tariffs. The White
House has plans to place a 15% tariff on roughly $160 billion worth of goods
from China just before Christmas. These taxes would be on mostly consumer goods
like toys and video games.

The administration is maintaining its tough negotiating
style for now. If the last two years of trade talks has shown us anything, it’s
the low level of trust between U.S. and Chinese negotiators.

Perhaps that’s the reason why negotiators decided on a
phased approach. Negotiators may find it necessary to have incremental agreements
of a China deal as they try to build confidence that the other side will commit
to a deal.

Already, negotiations fell apart in May when U.S.
negotiators lost faith when Chinese negotiators backed away from what was
considered a mostly done deal. Some reports
suggest Chinese negotiators cut a 150-page deal down to 105 pages. 

But still, the announcement of a phased deal with China may
come as a bit of surprise to some.

Since the beginning, Trump and his advisers have emphasized getting a large, comprehensive deal with China—one that’s not just about agricultural purchases but includes structural reforms as well.  

At least for now, there will be no new tariffs this week,
and markets have been cautiously optimistic since the announcement of phase one
of the deal.

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