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December 2, 2018 2:15 PM, EST

US, China Agree to Delay Consideration of New Tariffs

President Trump at the G20 Summit in Argentina President Trump at the G20 Summit in Argentina. (Erica Canepa/Bloomberg News)

President Donald Trump and Chinese President Xi Jinping agreed to keep their trade war from escalating with a promise to halt the imposition of new tariffs for 90 days as the world’s two largest economies negotiate a lasting agreement.

The truce between the U.S. and China emerged after a highly anticipated dinner Dec. 1 between Trump and Xi on the sidelines of the Group of 20 summit in Argentina. The leaders agreed to pause the introduction of new tariffs and intensify their trade talks, Chinese Foreign Minister Wang Yi told reporters hours later in Buenos Aires.

“Both sides believe that the principled agreement reached between the two presidents has effectively prevented the further expansion of economic frictions between the two countries,” he said.

Chinese President Xi Jinping

Chinese President Xi Jinping by Erica Canepa/Bloomberg News

The White House called the meeting “highly successful,” saying the U.S. will leave existing tariffs on $200 billion of Chinese goods at 10% and refrain from raising that rate to 25% as planned Jan. 1. In exchange, the U.S. wants an immediate start to talks on Trump’s biggest complaints about Chinese trade practices: intellectual property theft, non-tariff barriers and forced technology transfer.

After 90 days, if there’s no progress on structural reform, the U.S. will raise those tariffs to 25%, White House Press Secretary Sarah Huckabee Sanders said in a statement. China also agreed to boost its purchases of agricultural and industrial goods to reduce its trade imbalance with the U.S., she said.

“It’s an incredible deal. It goes down, certainly — if it happens, it goes down as one of the largest deals ever made,” Trump told reporters aboard Air Force One as he returned from Argentina. “China right now has major trade barriers — they’re major tariffs — and also major non-tariff barriers, which are brutal. China will be getting rid of many of them.”

Investors have been eager for signs of a progress toward keeping an already costly trade dispute from spiraling into a new and broader cold war. White House economic adviser Larry Kudlow said that the meeting went “very well” in a brief comment to reporters as the Trump delegation left Buenos Aires for Washington.

“This is a strongly market positive result for the short term, since over the past few days markets have been nursing hopes that a tariffs pause of this kind would happen,” Evercore ISI head of political analysis Terry Haines wrote in a note. “But it is not a ceasefire as some already are touting.”

The outcome gives both sides enough to boast of a win without resolving the fundamental differences between them. China gets a delay on additional tariffs, while the U.S. gets greater purchases of agriculture goods while retaining leverage to push for more structural changes to the economy.

“Neither side got their maximum demands and it’s not the first time in U.S.-China relations that both sides claim victory,” said Michael Pillsbury, a senior fellow at the Hudson Institute and a defense official under presidents including Ronald Reagan and George W. Bush. “Both sides avoided the worst-case scenario.”