US tariffs against China to remain in place into 2020 even if trade deal reached – Goldman Sachs

The world’s two biggest economies, China and the United States are more likely to reach some sort of trade agreement this month but the process of lifting tariffs would be gradual with some remaining into 2020, says Goldman Sachs.

“Our base case is that an agreement would leave some US tariffs in place, potentially lifting them in stages as various commitments under the agreement have been met. We nevertheless expect some US tariffs to remain in place into 2020,” the US investment bank wrote in a report on Monday.

It noted that trade tensions between Beijing and Washington appear to have “improved” over the last few weeks, with officials from both countries meeting several times and reporting that progress has been made.

The process to reach a trade deal could take place in three phases, according to Goldman. Most immediately, US and Chinese officials are likely to continue meeting over the next few weeks to work out differences on the outstanding issues, the report says.

The second phase will likely result in a meeting between US President Donald Trump and his Chinese counterpart Xi Jinping in late March where unresolved issues are to be ironed out.

If the Florida meeting takes place, there would be a 75 percent probability that the two presidents announce a formal agreement of some kind, Goldman said. “…We expect that whatever is agreed at that point will lack specifics in many areas and that additional technical work will still need to be done after the presidential meeting takes places.”

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The third phase which, according to Goldman, would be the most unclear in terms of outcome is enforcement of the agreement, where the issue of tariff rates will raise some uncertainty.

“It is not yet clear whether tariffs will be lifted or at least reduced as part of whatever agreement presidents Xi and Trump might reach,” the report said. “We would expect that the US would push to keep the current tariffs in effect in the near-term and reduce them only once China implements aspects of the agreement. We expect China to press for their immediate removal.”

The investment bank calculated that if Washington enacts the tariffs it has threatened — raising levies from 10-percent to 25-percent on $200 billion of Chinese imports, as well as increasing levies on the remaining $267 billion of other Chinese products — that could raise $97 billion in additional tariff revenues for the US.

Washington has repeatedly accused Beijing of stealing trade secrets, forcing foreign companies to hand over technology as the price of access to the Chinese market, and subsidizing its own tech companies. As part of the standoff, Washington imposed tariffs on $250 billion in Chinese imports. Beijing retaliated with levies on $110 billion in US goods.

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