According to the “Statement from the Press Secretary Regarding the President’s Working Dinner With China,” both President Trump and President Xi Jinping considered the meeting to be “highly successful.”
Prior to the meeting, Trump had threatened to raise the tariff of $200 billion of Chinese imports from the current level of 10% to 25% on January 1, 2019. He has now agreed to hold off on the increase and Xi has agreed to buy a “not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries” starting immediately.
In what the Press Secretary described as a “wonderful humanitarian gesture,” “Xi has agreed to designate Fentanyl as a Controlled Substance, meaning that people selling Fentanyl to the United States will be subject to China’s maximum penalty under the law.”
President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.”
Both Presidents agreed that meaningful progress has been made toward achievement of a nuclear free Korean Peninsula and both have vowed to continue to work toward that goal. “President Xi also stated that he is open to approving the previously unapproved Qualcomm-NXP deal should it again be presented to him.”
The statement said that Trump had “expressed his friendship and respect for Chairman Kim.”
President Trump stated: “This was an amazing and productive meeting with unlimited possibilities for both the United States and China. It is my great honor to be working with President Xi.”
South China Morning Post reporter Chungyan Chow said the dinner lasted for 2 1/2 hours, one hour longer than planned.
The dinner between Trump and Xi's team lasted longer than planned. At the end of the dinner, a big applause can be heard in the room. Signs bode well for a deal between the two. SCMP will have more information soon. https://t.co/ImcCqSjLDb
— Chungyan Chow (@ChungyanChow) December 1, 2018
Trump spoke to reporters on Air Force One following the meeting and was very upbeat about the results. He said:
It’s an incredible deal. It goes down, certainly, if it happens, it goes down as one of the largest deals ever made.
It’ll have an incredibly positive impact on farming, meaning agriculture, industrial products, computers, every type of product.
What I’d be doing is holding back on tariffs. China will be opening up. China will be getting rid of tariffs. You know, China right now has major trade barriers — they’re major tariffs — and also major non-tariff barriers, which are brutal.
The Qualcomm deal that they rejected — which was one of the larger deals of its kind, which China rejected — if that deal came back to him, he would most likely approve it quickly, which is a big thing.
Prior to the meetings, Goldman Sachs expressed their pessimism over a favorable outcome saying it was “too soon for a deal.” They offered three possible outcomes.
- A deal (10% chance). Talks have been taking place for a few weeks at lower levels, and it is possible that Presidents Trump and Xi could agree on a set of specific concessions on both sides. For example, President Trump could agree to lift tariffs on certain Chinese exports and to halt further tariffs in return for a commitment from President Xi to ensure greater purchases of US exports and liberalize various policies. This sort of deal could ultimately be struck, but we are skeptical that it will be struck now.
- A truce (just under 40% chance). Since dialogue only restarted recently, a more likely outcome than an outright “deal” would be a truce where the US refrains from imposing additional tariffs for the time being (i.e., postponement of the 25% step-up in tariff rate and no new tariffs on additional goods) and China commits to quickly propose a set of reforms, perhaps along with a down payment on a deal such as a commitment to increase purchases of certain US commodity exports. This does not strike us as the most likely scenario, but it certainly appears to be a possibility.
- Further escalation (just over 50% chance). We think it is slightly more likely that the talks end with an optimistic tone but that there is no immediate commitment to delay the step-up in the tariff rate to 25%. That said, we view this as a reasonably close call.
I would say the actual results were far better than Goldman anticipated. It remains to be seen if China will keep their word, but all in all, a positive outcome.