(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here.
The U.S. and China declared a truce in their trade war on Saturday, as Donald Trump said he would hold off imposing an additional $300 billion in tariffs and the world’s two largest economies agreed to resume negotiations.
After a high-stakes meeting with Chinese President Xi Jinping, Trump told reporters on Saturday that he also would delay restrictions against Huawei Technologies Co., letting U.S. companies resume sales to China’s largest telecommunications equipment maker. Trump later tweeted that his meeting with Xi was “far better than expected.”
Trump outlined the deal at the end of the Group of 20 summit in Osaka, Japan, before heading to Seoul. The White House released no details about the arrangement worked out by the two leaders. The president’s comments may remove an immediate threat from a trade war looming over the global economy even as a lasting peace remains elusive.
After Trump and Xi met at the G-20, the two governments plan to restart trade talks that broke down last month. As part of the arrangement, the president said Xi promised to buy “tremendous” amounts of U.S. agricultural products, but Chinese official media reports said only that Trump hopes China will import more American goods as part of the truce.
The existing U.S. tariffs on Chinese products will remain unchanged, Trump tweeted on Sunday from Seoul, his next stop for meetings with South Korean President Moon Jae-In.
The decision to ease up on tariffs comes less than two weeks after he formally began his 2020 re-election bid, focusing on a strong U.S. economy and his tough stance with the rest of the world. At his June 18 campaign event in Florida, Trump said tough U.S. measures were adding billions to the Treasury and prompting companies to leave China to avoid the fees.
While the resumption of U.S.-China talks was welcomed, International Monetary Fund Managing Director Christine Lagarde warned that the global economy is in a “rough patch” with unresolved issues on trade posing the most serious risk for the future.
“Tariffs already implemented are holding back the global economy, and unresolved issues carry a great deal of uncertainty about the future,” she said in a statement.
Trump told reporters he wouldn’t put additional tariffs on China for the “time being,” and that he’ll allow U.S. companies to supply gear to Huawei. The Commerce Department last month blacklisted the company for national security reasons.
The Trump administration has been lobbying allies around the world not to buy Huawei equipment, which the U.S. says could be used for Chinese espionage. The company has denied the allegation. China has said it wanted Huawei removed from Commerce’s blacklist as soon as possible and has accused the U.S. of unfairly using state power to harass a private company.
“U.S. companies can sell their equipment to Huawei,” Trump said. “We’re talking about equipment where there’s no great national security problem with it.”
Trump didn’t suggest he was relenting on plans to ban the import of Huawei equipment for new U.S. 5G telecommunications networks, which is the top concern of intelligence agencies.
Huawei reacted positively to the news on its verified Twitter account: “U-turn? Donald Trump suggests he would allow #Huawei to once again purchase U.S. technology!”
But in the U.S., Senate Minority Leader Chuck Schumer, a New York Democrat, said the decision damages U.S. negotiating efforts on trade.
“Huawei is one of few potent levers we have to make China play fair on trade,” Schumer said Saturday in an emailed statement. “If President Trump backs off, as it appears he is doing, it will dramatically undercut our ability to change China’s unfair trades practices.”
Senator Marco Rubio a Florida Republican, suggested legislation would be passed -- with what he said is a veto-proof majority -- to keep the limits in place.
The return to the negotiating table ends a six-week stalemate that has unnerved companies and investors, and at least temporarily reduces fears that the world’s two largest economies are headed into a new cold war. Still, it’s unclear whether they can overcome differences that led to the collapse of a previous truce reached at the G-20 in November.
Trump and top officials in his administration alleged that Beijing had reneged on provisions of a tentative trade deal. It’s not clear if Xi agreed to return to previous agreements as part of the new truce.
Trump said he had not yet decided how to allow U.S. companies to continue selling to Huawei or whether to remove the tech giant from the Commerce Department’s entity list. He said he would meet with advisers next week to determine how to proceed.
“As for President Trump’s comments that some restrictions on Huawei will be removed, we will of course welcome this if those words are put into action,” Chinese diplomat Wang Xiaolong said at a briefing at the G-20.
The move to blacklist Huawei was seen as a major escalation that could hurt the company’s supply chain. It had also prompted lobbying from U.S. companies like Intel Corp. and Alphabet Inc.’s Google, worried about losing their sales to a major client.
“I like our companies selling things to other people, so I allowed that to happen,’’ he said.
It was not clear how long the exemption would last. Trump said he had agreed with Xi to wait until the very end of trade talks to resolve broader issues around Huawei, including Washington’s lobbying campaign against allies buying its 5G equipment.
“Huawei is a complicated situation,” Trump said. “We’re leaving Huawei toward the end. We’ll see where we go with a trade agreement.”
The move is likely to draw criticism in Washington where national security hawks have urged Trump not to ease any pressure against Huawei. The company has long been the target of concern at the Pentagon and intelligence agencies in part over what the U.S. claims are its close ties to the Chinese military.
Trump said he didn’t discuss the case of Meng Wanzhou, the daughter of Huawei founder Ren Zhengfei, who has been under house arrest in Vancouver since being detained by Canadian authorities on Dec. 1 last year over a U.S. extradition request.
The U.S. has accused Meng of tricking banks into conducting more than $100 million worth of transactions for Huawei that may have violated U.S. sanctions on Iran. Meng faces multiple criminal charges in the U.S., including bank and wire fraud, money laundering and conspiring to obstruct justice, each of which carries a maximum sentence of 30 years in prison.
Since trade talks collapsed on May 10, Trump has raised tariffs on $200 billion of Chinese goods to 25% from 10%. He had indicated before the G-20 that the next step could be a 10% tariff on all remaining imports from China -- some $300 billion worth, from smartphones to children’s clothes.
Concern about the standoff has prompted investors to bet on central-bank easing and pile into havens. Treasury yields have tumbled to their lowest level in years. The Japanese yen, a traditional beneficiary of flight to quality, has gained, while the U.S. dollar has slipped across the board, including against China’s yuan. Stocks have seesawed on each new twist in the trade tug-of-war.
Xi spent much of the summit’s first day Friday promising to open up the Chinese economy, and chiding -- though not naming -- the U.S. for its attack on the global trading system.
In remarks to African leaders on Friday, Xi took a not-so-subtle swipe at Trump’s “America first” trade policy, warning against “bullying practices” and adding that “any attempt to put one’s own interests first and undermine others’ will not win any popularity.”
Xi also called out the U.S. over Huawei and said the G-20 should uphold the “completeness and vitality of global supply chains.” China insisted this week that Huawei must be removed from the blacklist under any deal.
(Updates with Trump comments on China deal, South Korea meetings.)
--With assistance from Margaret Talev, Nick Wadhams, Jennifer Jacobs and Peter Martin.
To contact the reporters on this story: Shawn Donnan in Washington at email@example.com;Miao Han in Beijing at firstname.lastname@example.org
To contact the editors responsible for this story: Daniel Ten Kate at email@example.com, Alex Wayne
For more articles like this, please visit us at bloomberg.com
©2019 Bloomberg L.P.