US, China agree to trade war ceasefire, talks to continue

US President Donald Trump and China's Xi Jinping agreed Saturday to suspend any new tariffs in the escalating trade war between the world's two largest economies, even if huge existing duties will remain in place.

Following more than two hours of dinner talks between the two leaders, the White House said an increase of tariffs from 10 to 25 per cent due to kick in on January 1 would now be put on hold, providing room for intense negotiations. 

The agreement hashed out over steak in the Argentine capital Buenos Aires, lowers the temperature in a conflict that has spooked world markets.

The two leaders, who were in Buenos Aires for a summit of the G20 countries, called it "a highly successful meeting," the White House said.

"The principal agreement has effectively prevented further expansion of economic friction between the two countries and has opened up new space for win-win cooperation," said Chinese Foreign Minister Wang Yi.

Partial truce

Under the agreement, Trump is shelving a plan to raise existing tariffs of 10 per cent to 25 per cent from the start of next year.

Xi avoids further immediate pressure on China's slowing economy, while Trump -- hit by the US Democrats' congressional win in last month's mid-term elections -- can ease damage to agricultural US states that export to China, particularly the key soybean crop.

"This was a rare opportunity for China because (the mid-terms) made Trump a lame president," said Beijing-based political consultant Hua Po.

"So at this time it was acceptable for China to maintain some bottom lines while making some major concessions."

But Brad Setser, a former Treasury official and now senior fellow at the Council on Foreign Relations in Washington, told Bloomberg much remains to be done.

"The hard part is finding the basis for a real deal that settles the broader issues rather than agreeing on a pause," Setser said.

The truce is only partial.

Some $50 billion worth of Chinese imports already face 25 per cent tariffs, while the 10 per cent tariffs -- which target a massive $200 billion in goods -- will also remain in effect. 

Meanwhile, China has targeted $110 billion worth of US imports for tariffs. 

If there is any further retaliation, Trump has warned, he will slap punitive duties on the remaining $267 billion in Chinese goods coming to the United States.

And Saturday's truce also contained an ultimatum.

The White House made clear that the 10 per cent tariffs would still leap up to 25 per cent if China doesn't meet US demands in 90 days.

These include China stopping a host of trade barriers, intellectual property theft and other actions that Washington says make fair trade impossible. 

Tough negotiations lie ahead, but Trump was upbeat.

"This was an amazing and productive meeting with unlimited possibilities for both the United States and China," he said in a statement.

Steaks and high stakes

The meeting -- featuring a menu of sirloin steak, caramel rolled pancakes and Argentine wine -- went on longer than scheduled. 

And while it may have been tacked on to the end of two days of G20 diplomacy, it was in many ways the main event of the weekend.

German Chancellor Angela Merkel, who was also attending the G20, spoke for many when she urged progress.

"We all realize that we are indirectly influenced by the fact that Sino-American economic relations are not running as smoothly as a world order needs," she said.

Personal chemistry factor

On the US side at the dinner, Trump was accompanied by advisers such as Larry Kudlow and Treasury Secretary Steven Mnuchin, who are widely seen as wanting a deal.

But hawkish advisers like Peter Navarro and US Trade Representative Robert Lighthizer were also present. 

Trump, as often in his diplomatic dealings, appears to consider his personal chemistry with Xi the most important factor in the success of the negotiations.

He has prided himself on building a good relationship with the Chinese leader, even though he acknowledges it may have trouble surviving the growing crisis.

At the dinner, Trump said his ties to Xi were "a very primary reason" for considering a deal possible.