BEIJING—U.S. negotiators have offered to slash existing tariffs by as much as half on roughly $360 billion of Chinese-made goods as well as to cancel a new round of levies set to take effect Sunday, according to people briefed on the matter, as the two sides continue to hammer out a limited trade deal that could help prevent an increasingly shaky bilateral relationship from sinking further.
President Trump wrote in a Tweet on Thursday morning: “Getting VERY close to a BIG DEAL with China. They want it and so do we!”
The tariff-reduction offer was made in the past five days or so, the people said, and in exchange, the U.S. side has demanded that Beijing make firm commitments to purchase large quantities of U.S. agricultural and other products, to better protect U.S. intellectual-property rights and to allow greater access to China’s financial-services sector.
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Should China not carry out its pledges as part of the potential deal, the tariff rates would return to their original levels, a clause known in trade negotiations as a “snapback” provision.
Negotiations are grinding on. During several rounds of talks since October, Chinese negotiators have balked at Washington’s request that Beijing guarantee its pledge to buy more U.S. soybeans, poultry and other products, saying doing so would run counter to the rules of the World Trade Organization.
“Trade teams from both sides are maintaining close communications,” Gao Feng, spokesman at China’s Commerce Ministry, said at a news briefing Thursday. He didn’t provide any additional information.
Details of the new U.S. plan emerged as the clock runs out for the two sides to reach an agreement before 12:01 a.m. Sunday—the date that President Trump has set for tariffs to increase on an additional $156 billion of Chinese goods. Officials in both Beijing and Washington have indicated that negotiations could be extended beyond that date, as has happened several times when the two sides believed they were close to a deal. None of the trade truces declared in the past two years has stuck, however, and the uncertainty around trade between the world’s two largest economies has weighed on global growth.
Mr. Trump hasn’t unveiled a decision on whether or not to delay the scheduled new tariffs, or whether to accept a rate cut on existing tariffs. The new tariffs set for Dec. 15 would hit imports from China of mobile phones, laptops, toys, clothing and other consumer products.
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Wary of what they regard as Beijing’s poor record on following through on its pledges, U.S. negotiators led by Trade Representative Robert Lighthizer have asked China to commit in writing to some agricultural purchases up front and to agree to a detailed timeline for future purchases. In addition, the U.S. side has been pressing China to specify in the text of the deal that there would be a quarterly review of promised purchases and that the purchase amount wouldn’t drop by 10% in any given quarter.
The U.S. has imposed tariffs on Chinese goods in phases over the past two years. At the moment, the U.S. is imposing 25% tariffs on about $250 billion of Chinese goods and 15% tariffs on an additional roughly $111 billion. Those rates would be slashed by as much as half under the terms of Washington’s latest offer but would snap back to their original levels if China fails to deliver on its promised purchases.
During recent discussions, Chinese negotiators have been reluctant to meet the U.S.’s demands. They worry that guaranteed purchases would cause friction with China’s other trading partners. In addition, Chinese officials have argued that the purchases should be based on market prices and organic demand from Chinese companies. For example, Brazil is offering soybeans at lower prices than the U.S., and buying from the U.S. at higher prices would disadvantage Chinese buyers.
President Trump will meet with his top economic officials on Thursday afternoon to discuss China trade, the White House said. According to an administration official, the meeting is expected to include Mr. Lighthizer, senior trade adviser Peter Navarro, White House economic adviser Larry Kudlow, Treasury Secretary Steven Mnuchin and Vice President Mike Pence.
Mr. Kudlow said at a meeting of The Wall Street Journal’s CEO Council earlier this week that the Dec. 15 tariffs “are still on the table” if the president isn’t happy with the progress of the trade talks, though he has also suggested that there isn’t a drop-dead date for making a call on the planned tariff increase.
The new tariff-reduction offer is designed to enable Washington to retain some of its leverage over Beijing, even as it extends Beijing an olive branch. If a near-term deal were reached and the U.S. reduced its tariff rates across the board, for example, some levies would still remain in place and could be used as a cudgel to push Beijing to carry out its promises and continue discussions.
But a deal along these lines is bound to be criticized in the U.S. as giving up too much leverage. Reduced tariffs of 7.5% or 12.5% are much easier for exporters and importers to handle and may not be sufficient to compel Beijing to change policies at the heart of its economic model.
Many of the toughest issues are still to be resolved. They include China’s subsidies to domestic firms, restrictions on foreign access to fast-growing sectors like cloud computing and an end to Chinese pressure on U.S. firms to transfer technology to their Chinese partners.
Both Xi Jinping, China’s president, and President Trump could frame such a near-term deal as a win.
Mr. Trump would be able to argue that he secured a guarantee of large-scale purchases from Beijing while keeping the tariff pressure on China.
Mr. Xi, meantime, would be able to point to a slashing of existing tariffs, which would serve as a much-needed boost to the slowing Chinese economy. The trade war with the U.S. has caused China’s exports to the U.S. to tumble and businesses to delay investments.
During recent talks, Chinese negotiators led by Vice Premier Liu He have asked their counterparts to not only cancel the planned December tariffs but also to roll back existing levies—a demand that the U.S. had resisted until recently.
“The ball is in China’s court now,” said one of the people briefed on the U.S. offer.
Having what is widely regarded as a balanced agreement remains a priority for the Chinese negotiators and for the country’s leadership. Beijing walked away from a nearly completed deal in early May because it felt that the text of the agreement was too lopsided in Washington’s favor. That led the Trump administration to ramp up its trade offensive against China, which then hit back, exacerbating a vicious cycle of retaliation and counter-retaliation.
Having significantly consolidated power in recent years, Mr. Xi has staked his credibility as China’s most powerful leader in a generation in large part on his image as someone willing and able to stand up to foreign pressure.
In recent weeks, tensions have continued to increase between Washington and Beijing, triggered by two bills in the U.S. Congress supporting human rights in Hong Kong and Xinjiang. Aggressive media coverage in China targeting the U.S. is further fanning nationalist sentiment on the mainland, making officials ever more sensitive about even the appearance of caving in to American pressure.
“China’s domestic political exigencies make it difficult for its leadership to accept a deal that is asymmetric,” said Eswar Prasad, an economics professor at Cornell University and former senior China official at the International Monetary Fund, who was in Beijing early this week meeting with policy makers.
Trade negotiations between the two sides have been stop-and-go since the summer. Talks accelerated again in October, when President Trump announced a new truce with China, with the near-term goal of reaching a so-called phase-one deal.
Discussions have so far centered on getting China to commit to annual purchases of between $40 billion and $50 billion of U.S. farm products. U.S. officials are also pressing China to buy more U.S. energy and manufactured products.
The limited deal being negotiated would also include Chinese pledges to further liberalize China’s financial-services sector and strengthen its intellectual-property protections. Beijing has also agreed not to engage in competitive currency devaluation to help Chinese exporters, though it has made similar promises as part of some multilateral pacts in the past.
If finalized, the deal would cover only a small portion of the U.S. complaints against China’s trade practices, leaving largely untouched fundamental issues including subsidies and Chinese pressure on American firms to share technology. Those matters would be left for future negotiations, though many in the U.S. business community remain skeptical that such discussions will bear fruit.
—Alex Leary in Washington contributed to this article.
Write to Lingling Wei at lingling.wei@wsj.com and Bob Davis at bob.davis@wsj.com
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