US, China agree to resume trade talks, pause tariffs

The US and China have agreed to restart trade talks, averting the prospect of a damaging escalation in tariffs in the near future.

The US will not impose any new tariffs on China, President Donald Trump said today after meeting his Chinese counterpart, Xi Jinping, on the sidelines of the G20 summit in Osaka, Japan. Existing tariffs will stay in place. China agreed to buy US agricultural products during the discussions, Trump said.

Xi and Trump agreed to restart economic and trade talks "on the basis of equality and mutual respect", with the US agreeing to impose no new tariffs on Chinese products, China's foreign ministry said. Specific issues will be discussed by the two countries' negotiating teams.

The resumption of talks removes a major source of uncertainty for the global economy, and oil markets, ahead of next week's meeting of Opec and non-Opec oil producers. Any move to impose new tariffs on all remaining trade between the countries, as Trump had threatened, could have shaved 0.3 percentage points off global GDP growth in the near term, the IMF has warned.

The decision to pause any new tariffs also ensures that crude will not be sucked directly into the trade war. China has so far exempted crude from its retaliatory tariffs on US imports, although the uncertainty has severely cut trade flows over the last year.

Trump, during a press conference following the conclusion of the G20 summit, presented today's deal in a transactional light. "We are holding on tariffs and they are going to buy farm products," he said. China will buy a "tremendous amount" of food and agricultural products, starting almost immediately, he said, without giving details.

Trump also hinted at rolling back some restrictions on Chinese telecoms giant Huawei, which has been barred from accessing supplies of US components and technology. US companies will be able to continue selling products to Huawei, Trump said, although he refused to confirm whether this meant the company would be removed from the US blacklist.

But there is no indication that any new progress has been made on other key issues that derailed previous rounds of negotiations. China wants all tariffs to be removed as part of any future deal, and has pushed back against US demands for enforcement mechanisms to be written into its laws. US negotiators' insistence that China reform its system of state support for industries and open up to foreign investment may directly threaten the Communist party's control of the economy.

A failure to agree on those issues contributed to a breakdown in talks in May, despite US treasury secretary Steven Mnuchin claiming that a deal was 90pc done. How the two sides will overcome these key differences remains unclear.

The broad outlines of the agreement — to reset trade talks and pause any new tariffs — had emerged as the expected outcome of the meeting in recent days.

The resumption of trade talks is welcome, but "tariffs already implemented are holding back the global economy, and unresolved issues carry a great deal of uncertainty about the future", IMF managing director Christine Lagarde said following the conclusion of the G20 summit today.

Existing tariffs cover almost all commodity and energy products. The US has imposed tariffs on around $250bn/yr of imports from China, while the majority of China's imports from the US — around $110bn/yr out of total trade of $120bn/yr — is now subject to tariffs.