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U.S. Says Phase-One China Deal Would Include Tariff Rollback

White House economic adviser Larry Kudlow later Thursday confirmed the advance in negotiations.

U.S. Says Phase-One China Deal Would Include Tariff Rollback
A container ship passes in front of containers and gantry cranes at the Haitian Container Terminal, operated by the Xiamen Port Authority, in Xiamen, China (Photographer: Qilai Shen/Bloomberg)

(Bloomberg) --

The U.S. and China have agreed to roll back tariffs on each other’s goods in phases as they work toward a deal, both sides said.

“In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement,” China’s Ministry of Commerce spokesman Gao Feng said Thursday.

U.S. Says Phase-One China Deal Would Include Tariff Rollback

White House economic adviser Larry Kudlow later Thursday confirmed the advance in negotiations. “If there’s a phase one trade deal, there are going to be tariff agreements and concessions,” he told Bloomberg.

Kellyanne Conway, senior White House adviser, also said Thursday President Donald Trump is “anxious” to sign the deal. The negotiations are ongoing and a time or place for any signing of a pact is yet to be determined.

However, White House trade adviser Peter Navarro told Fox Business: “there is no agreement at this time to remove any of the existing tariffs as a condition of the phase one deal. The only person who can make that decision is President Donald J. Trump. It’s as simple as that.”

An agreement to ratchet back tariffs would pave the way for a de-escalation in the trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs imposed by Trump, which by now apply to the majority of its exports to the U.S.

“If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement,” Gao said Thursday.

Asian stocks were mixed Friday and U.S. equity futures edged lower as the risk-on mood that’s permeated global financial markets this week showed signs of abating.

U.S. Says Phase-One China Deal Would Include Tariff Rollback

China’s exports and imports continued to contract in October, data released Friday showed, though slightly less than forecast by economists. The trade surplus with the U.S. widened in the month to $26.4 billion.

“The question right now is what the two sides have actually agreed on -- the market’s focus has shifted to how the U.S. may react to China’s tariff remarks tonight or in coming days,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “Investors are still cautious.”

The two sides continue to negotiate over where and when a “Phase One” deal would be signed. Gao said he had no further information on the location or timing.

U.S. locations for a Trump-Xi meeting that had been proposed by the White House, including Iowa and Alaska, have been ruled out, according to a person familiar with the matter. Locations in Asia and Europe are now being considered instead, the person said, asking not to be identified because the discussions aren’t public.

U.S. Says Phase-One China Deal Would Include Tariff Rollback

On Thursday, China sentenced three nationals to maximum punishments for smuggling fentanyl to the U.S., in one of its highest-profile moves yet against the illicit flow of opioids that Trump has made a bone of contention in broader trade talks between Washington and Beijing.

In another move, China’s General Administration of Customs and Ministry of Agriculture are studying the removal of curbs on U.S. poultry imports, Xinhua reported, without providing more details.

Trump administration officials in recent days have expressed optimism that phase one of a comprehensive trade deal might come together this month, helping boost equity markets to records this week.

Given repeated reversals in the more than year-long trade war, investors are waiting for further confirmation of progress between the two sides.

“I am skeptical on how fast the progress will be,” said Iris Pang, economist with ING Bank NV in Hong Kong. “How fast the roll back will be is critical to get material and long lasting positive sentiment for the market as well as for both economies.”

--With assistance from Tian Chen, Yinan Zhao, Sharon Chen, Josh Wingrove, Joshua Gallu, Jenny Leonard and Shawn Donnan.

To contact Bloomberg News staff for this story: Miao Han in Beijing at mhan22@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Daniel Ten Kate

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With assistance from Bloomberg