In their latest effort to defuse the trade tensions that have hurt economies worldwide for months, China and the United States have agreed to roll back tariffs on each other's goods in phases as they work towards a trade deal, Beijing said.
"In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement," said China's Commerce Ministry spokesman Gao Feng.
Mr Gao said that rolling back existing tariffs "in the same proportion and simultaneously" is an important condition in reaching a phase-one deal, but left unsaid exactly how much of the tariffs would be rolled back.
"The amount of tariff relief in phase one should depend on the content of the agreement," he said.
Stock markets rallied after Mr Gao's comments, the first concrete sign in months that not only is a partial deal between the world's two largest economies in sight, but also that the unwinding of punitive tariffs that have dragged global economic growth is on the table.
Hong Kong's Hang Seng Index climbed 0.6 per cent, while contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq all jumped.
While the US has yet to confirm the tariff rollback, China's key demand since the start of negotiations has been the removal of tariffs imposed by US President Donald Trump, which today apply to some US$550 billion (S$746 billion) worth of goods, the majority of its exports to the US.
Experts said the announcement that existing tariffs would be rolled back in stages was a positive development, but cautioned against over-exuberance, given the repeated reversals in the 19-month-long trade war.
"Given President Trump's love of tariffs, the additional element (of tariff rollbacks) may increase the risk and prolong the phase-one negotiation," said OCBC Bank's head of Greater China research Tommy Xie.
But Chinese trade expert Huo Jianguo said the move was a vindication of Beijing's long-held position on the punitive tariffs.
"China has been very insistent that existing tariffs must be done away with in any deal, so the announcement shows the US giving way in the face of Beijing's core interests," said Dr Huo, who is vice-chairman of the China Society For World Trade Organisation Studies.
"At the same time, the US side wants to save face - especially with an impending presidential election - so it is unlikely all the tariffs are rolled back."
That an unwinding of tariffs appears to be on the cards even though China has yet to make any major policy concessions could be a sign that the Trump administration was getting desperate for a deal, said Mr Nick Marro, global trade lead at the Economist Intelligence Unit.
"Settling for a shallow deal seems like an attempt for the US to extricate itself from more economic pain before the election year, particularly because the latest tariffs have been more disruptive than the US administration originally thought," he said.
ING's Greater China economist Iris Pang said speculation that the US might roll back a 15 per cent tariff that was imposed on US$112 billion worth of Chinese goods in September is premature. The US fears that such a large concession might make it harder to get China to back down on unresolved issues, she said. Thus, "the first rollback is unlikely to be a very big amount".
Still, Ms Pang felt that both sides are motivated to achieve a good outcome: a deal that Mr Trump can call a win for the 2020 election, and a boost to business confidence for China. "It's a good start and, hopefully, there will be more of this and less backtracking, but we need to watch what happens after phase one."
