© [2019], Sandler, Travis & Rosenberg, P.A. Originally published in the [11/06/2019] issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission.

China is reportedly pushing harder to roll back U.S. tariffs on its goods as part of the “phase 1” bilateral trade agreement the two sides are currently negotiating. In the meantime, a new World Trade Organization ruling could give Beijing further leverage in the talks.

President Trump announced Oct. 15 an agreement in principle on the first phase of a broad trade agreement with China that he said could be finalized in three to five weeks. Since then the two sides have been discussing the commitments each will make as part of this agreement, and while officials say recent talks have made progress in this direction there are still some outstanding issues.

One of those is how far the U.S. is willing to roll back its tariffs on Chinese goods. In October President Trump said only that he would delay increasing from 25 percent to 30 percent tariffs on so-called list 1, 2, and 3 goods from China. According to press reports, Beijing is demanding that the U.S. also cancel the additional 15 percent tariff on List 4B goods that is set to take effect Dec. 15. China has also reportedly asked the U.S. to eliminate the 15 percent tariff on List 4A goods that was imposed Sept. 1 and lower the tariff on list 1, 2, and 3 goods. While at least one source suggests that the president may be open to these changes, others point out that he has expressed an interest in keeping the tariffs in place to ensure China complies with its commitments.

Separately, a WTO arbitrator ruled Nov. 1 that China can seek authority to impose $3.58 billion in retaliatory sanctions against the U.S. for its failure to comply with a previous WTO ruling against its use of certain methodologies in calculating antidumping duties on dozens of Chinese goods. That amount is roughly half what Beijing had requested but represents the third-largest retaliation award in WTO history.

Sanctions typically take the form of higher tariffs on imported goods, but China has already increased tariffs on most imports from the U.S. in response to Washington’s Section 301 tariff hikes. China could opt to raise its tariffs on U.S. goods even further, but an article in The New York Times notes that Beijing “has been reluctant” to do so “because it could raise costs for essential products like medical devices and food.” Instead, China could consider other options, such as measures that would make it more difficult for U.S. companies to do business there.

Whatever form the sanctions may take, if China requests and receives WTO authority to impose them, they could remain in place for an extended period given that Trump administration officials reportedly said they have no plans to change the practices the WTO ruled against. However, press reports indicate that China may opt to delay the sanctions as a show of good faith in the ongoing trade agreement negotiations.