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Reports Of Possible U.S.-China Trade Deal

AILSA CHANG, HOST:

There is word of a possible trade agreement today between the U.S. and China. Multiple news outlets say the two sides have struck an agreement in principle on a Phase 1 deal. President Trump teased the deal on Twitter this morning, prompting a quick surge in the stock market. The agreement comes just days before the U.S. was set to impose another round of tariffs on Chinese imports this Sunday. NPR's Scott Horsley joins us now to talk about all this.

Hey, Scott.

SCOTT HORSLEY, BYLINE: Hi, Ailsa.

CHANG: So what do we know about the so-called agreement in principle?

HORSLEY: There's been no official announcement, but several news outlets, including The Wall Street Journal and Reuters, say the U.S. has agreed to suspend that next round of tariffs - which, as you say, were going to take effect on Sunday - and also reduce some of the existing tariffs on Chinese imports. Now, that would be a major concession by the Trump administration, and it's not entirely clear what they're going to get in return from China. We do know the White House has been pushing China to buy a lot more U.S. farm goods. The administration also wants China to do a better job of protecting intellectual property.

CHANG: All right. Well, as we mentioned, investors love this news of a possible agreement. The Dow Jones Industrial Average jumped 220 points. Can you just give us a sense of what that tells us?

HORSLEY: It tells you how damaging the trade war has been and how eager Wall Street is for some kind of resolution. A caveat, though - you know, we've had a lot of promises of a trade deal with China in the past.

CHANG: Yeah.

HORSLEY: You know, last spring, we thought we were close, again in October. In the spring, things fell apart. In October, we were told they just need to put it on paper. That's what they've been trying to do. All of this has created a lot of uncertainty for businesses, and we've seen business investment slump this year. That's been a drag on economic growth. Federal Reserve Chairman Jerome Powell is usually careful not to comment on the substance of the trade talks, but he did say this week it would be helpful to have some predictability.

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JEROME POWELL: People that we talked to - the many, many people and businesses that we talked to - they've been telling us all year - for a year and a half, really - that trade policy uncertainty is weighing on the outlook. And I do think that removal of uncertainty around that would be a positive for the economy as well.

HORSLEY: Now, we did get some of that earlier in the week, when congressional Democrats said that they would go along with the administration's new trade deal with Mexico and Canada. The stock market pretty much yawned at that. The stakes in the China deal are a lot higher, and that's why you see the bigger stock jump today.

CHANG: Well, both sides were under a lot of pressure to reach a deal before the next round of tariffs. What does an agreement mean ultimately for, say, consumers and businesspeople?

HORSLEY: It is certainly some welcome relief. That December 15 round of tariffs was going to affect a lot of popular consumer items from China like cellphones, laptops and toys. About 85% of all the toys sold in this country are from China. Even if the tariffs had gone into effect on Sunday, they would have hit cargo containers arriving in port, not the products that are already on store shelves. But Steve Pasierb, who heads the U.S. Toy Association, told me had the two sides not made this agreement, it could have put a dent in holiday spirits.

STEVE PASIERB: The real worry around this December 15 date was, would this depress consumer sentiment going into the final two weeks of the year, arguably the two most important weeks of the year leading up to the holiday? So we're very thankful that they're talking about a delay.

HORSLEY: So a big sigh of relief, but keep in mind, Ailsa, this is just a Phase 1 agreement - basically, asking China to buy farm goods they need anyway. The harder part, the big structural issues that led the president to launch this trade war - things like forced technology transfer or state subsidies for Chinese businesses - those more difficult talks are still on the horizon.

CHANG: So still a lot of knots to untie. That's NPR's Scott Horsley.

Thanks, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.