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Bloomberg Media: Trump Could Offer China Interim Trade Deal

Sources say the deal could include a roll back of some U.S. tariffs.

Citing unanimous sources close to the matter, Bloomberg Media reported Thursday that officials in President Donald Trump’s administration have talked about offering China an interim trade deal.

The proposed agreement could include a U.S. pledge to roll back tariffs on some imported Chinese products – a move that would potentially carry significant implications for the domestic promotional products industry. The U.S. promo industry imports the vast majority of products sold here from China.

 

According to Bloomberg, senior level trade advisors have, of late, been discussing a limited trade agreement proposal as they gear up for face-to-face negotiations with Beijing’s top trade officials in Washington D.C. in the weeks ahead. In order for the U.S. to sign off on the agreement, China would reportedly have to ascent to purchasing a yet unspecified amount of American agricultural products and make commitments on intellectual property protections regarding foreign companies operating in China. Early Friday, China said it wouldn’t impose additional tariffs on soybeans, pork and other U.S. agricultural products.

“The proposal also would be an interim deal, which would freeze the conflict, rather than bring a final resolution to a trade war that has cast a shadow over the global economy,” Bloomberg reported. “One of the main goals is to strike a deal that would allow the administration to avoid going ahead with more tariffs in December that would hit consumer products ranging from smartphones to toys and laptop computers. Also in play is a further delay in a tariff-rate hike due to take effect in October.”

Earlier this week, Trump said he will delay increasing the tariff rate on $250 billion worth of Chinese imports from the current 25% to 30% by two weeks. Now, according to the president, the tariffs will go into effect on Oct. 15 instead of the previously planned Oct. 1. The move occurred after China, on Wednesday, said that it was exempting 16 products from a list of retaliatory tariffs it’s imposing on U.S. imports in reaction to recent levies from Trump.

Beijing’s announced levy exemptions and Washington D.C.’s tariff escalation delay happened a couple days after U.S. Treasury Secretary Steven Mnuchin told reporters that the U.S. and China have a “conceptual agreement” related to enforcing the terms of a new trade deal between the world’s two largest national economies. Enforcement is a particularly key issue as it relates to what the U.S. side says is intellectual property theft by Beijing on American firms doing business in China.

Some executives in the promo industry that Counselor spoke with took the softening tone from Washington and Beijing, and talk of potential breakthroughs, with cautious optimism.

“I think the interim trade deal news is a good indication that the world’s two biggest economies are ready to put tariffs to bed,” Jason Lucash, senior vice president of marketing and product at Top 40 supplier HUB Promotional Group (asi/61966), told Counselor. “Even if it’s just an interim trade deal and the two sides slowly work through all the different waves of tariffs, that’s better than nothing happening at all. Any news is better than no news, so I think this is a step in the right direction.”

David Nicholson, president of Top 40 supplier Polyconcept North America, told Counselor that that the tariff increase delay “was welcome news and a positive reversal of the escalating rhetoric over the last few weeks. With both sides making small but important concessions this week, this hopefully opens the door to a more productive dialogue during the upcoming October trade negotiations.”

Nicholson said he sees some additional positives in recent developments, including “China’s suggestion to separate trade issues from national security issues during the upcoming negotiations. This approach would allow for two parallel negotiation tracks – possibly enabling near-term agreements around trade while the more difficult security issues are tackled separately. We’ll see if the U.S. administration is open to this approach, but it does create the potential for more immediate progress.”

Still, some in promo are leery of putting too much stock in the recent seemingly positive developments. “We’ve been down this road so many times before and the pattern just repeats,” Eddie Blau, CEO of Top 40 supplier Innovation Line (asi/62660), told Counselor. “It does feel more optimistic this time, but even if a deal is struck, I don’t think Trump will repeal the tariffs on an expedited timeline. I think we’re still in this for the foreseeable future.”

Joshua White, general counsel and senior vice president of strategic partnerships at Top 40 distributor BAMKO (asi/131431), told Counselor that he “loves that there appears to be cause for optimism, but color me skeptical. China, understandably, wants to pursue a two-track solution that separates some of the trade issues from other geopolitical ones. My perspective is that the trade war is not just a trade war and that the trade issues are inextricably intertwined with everything else. I don’t see separating them as being realistic for a long-term solution. Still, it’s certainly possible that a narrow, interim detente could be reached, and I think the promo industry would breathe a large sigh of relief were that to happen.”

Meanwhile, Gregg Emmer, vice president and chief marketing officer at Top 40 distributor Kaeser & Blair (asi/238600), feels that, ultimately, the dispute will be settled and the duties wiped away. “I think we are watching the president’s negotiation style,” Emmer told Counselor. “I expect that eventually he will propose the elimination of all tariffs, and that’s what we’re leading up to.”

Despite the potentially positive overtures this week, new tariffs of 15% that went into effect on Sept. 1 on $112 billion worth of imported Chinese products remain in play. Should nothing change during trade talks or in the weeks after, then the 30% tariff rate on $250 billion in Chinese imports will take effect in mid-October, followed by tariffs of 15% on approximately $200 billion in additional imports on Dec. 15. The tariffs figure to drive up prices on a broad spectrum of consumer goods and promotional products in the months ahead.

The U.S./China trade war, which has escalated over the last couple years, has caused impacts on the American promotional products industry. Issues include increased product prices, destabilized annual pricing, challenges in producing catalogs, and an ever more uncertain selling environment. It’s also made longer-term planning more difficult for some suppliers and caused suppliers (and certain distributors that source direct from abroad) to increasingly look for countries beyond China to produce products. As the search for new sourcing destinations accelerates, some industry leaders worry that more product safety and social responsibility issues will arise.