Trump says China agrees to ‘reduce and remove’ tariffs on United States cars

Leroy Wright
December 5, 2018

Word of the deal, which essentially sets up a process for more negotiation, came hours after Trump met with Chinese President Xi Jinping on the sidelines of the G-20 summit here and after Air Force One had departed for Washington.

Stock markets in Asia and Europe jumped sharply after Trump and Xi, as leaders of the world's two biggest economies, agreed Saturday in Argentina to not impose any new tariffs on each other's exports for the next 90 days while they negotiate a detailed trade agreement.

China has agreed to "reduce and remove" the 40-percent tariff it slaps on new cars imported from the United States, president Donald Trump wrote in a Twitter post. While 11 months in 2016 had trade deficits with China that were lower than the same month the year before, every month since February 2017 has seen an increased deficit from the same month in the previous year. Had a deal not been struck, tariffs on US$200bn worth of Chinese goods would have risen from 10% to 25% at the start of 2019. "China relationship for the time being. the "pause" prolongs the period of uncertainty around the eventual structure of trade relations between the two countries", Goldman Sachs analysts said in a report. As part of that the US said it had agreed to hold off on raising tariffs Jan 1, while negotiations took place.

Again, this is a move in the right direction but the road to a lasting deal will be littered with potholes and could break down.

China's tariff on auto imports from all over the world was cut to 15 per cent from 25 per cent. The US has its own import tariff on Chinese-made cars, totaling 27.5 percent. Both companies build cars for the Chinese market at US plants, which are thus subject to the Chinese tariffs.

US Trade Representative Robert Lighthizer said last week that he was examining all available tools to raise US tariffs on Chinese vehicles to the 40 percent level that China was charging on US-made vehicles.

The markets' initial positive reaction obscures the fact that a firm agreement appears far off.

Qualcomm says it has 'no plans' to revive failed NXP bid
Qualcomm cited China's cancellation of its regulatory application as one of the main reason why the deal did not push through. It is important to note that China initially withholds the approval of the merger between the two chipmakers.

"Still, one must presume that as the existing and proposed tariffs are to spur China to address the US' IPR concerns, only action directly related to that would ultimately impact the 301 tariffs", he said.

In exchange, the two countries agreed to re-start talks on the U.S. concerns that triggered the dispute, including "forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft", according to the White House. The principal agreement has effectively prevented further expansion of economic friction between the two countries and has opened up new space for a win-win cooperation.

US stock indexes also opened sharply higher in NY at the start of a new work week, with the widely watched Dow Jones Industrial Average of 30 key stocks ahead more than 1.5 percent.

The meeting was indeed successful in that the two may have averted - at least for now - a deepening economic conflict between two of the world's biggest economies.

With US-Chinese disagreements on Trump's demands for better market access and intellectual property protections so profound, any real breakthrough was considered unlikely.

"In order to really make a difference, China needs to enact more sweeping comprehensive reforms in the short term", Zarit said. It's more of a trade-war time out.

Still, Beijing gave no sign of a changed stance on technology ambitions that Washington says violate Chinese market-opening obligations and might threaten US industrial leadership. Trump has also threatened to put tariffs on another $267 billion worth of Chinese imports.

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