US China Trade Truce at G20 Summit, 90-Day Ceasefire Announced

Irving Hamilton
December 5, 2018

Trump and Chinese President Xi Jinping agreed to hold off on new tariffs during talks in Argentina on Saturday, declaring a truce following months of escalating tensions on trade and other issues.

Trump gave no details about the vehicle tariffs, and there was no immediate response from the Chinese government.

But then Trump and Chinese President Xi Jinping met face to face at the G20 summit in Argentina this weekend.

Tensions rose in May when the USA administration said it would levy extra taxes on $50 billion worth of Chinese goods, bringing that figure up to $250 billion over the next few months.

US-made vehicle brands like Tesla Inc and Ford Motor Co's Lincoln were at a major disadvantage as the move came soon after China slashed auto import tariffs for the wider market to 15 percent from 25 percent.

Tweeting on Sunday night, Trump said: "China has agreed to reduce and remove tariffs on cars coming into China from the U.S. now the tariff is 40%". However, tariffs on US$200 billion worth of goods were previously set to increase from 10 percent to 25 percent from January 1, 2019.

The U.S. leader said U.S. farmers "will be a very BIG and FAST beneficiary of our deal with China".

China's statement also placed greater emphasis on economic cooperation and restoring diplomatic relations, the kind of high-minded talk that for decades has been more typical of American presidents. "We make the finest and cleanest product in the world, and that is what China wants", said Trump's tweet.

The White House later corrected him to say that the 90 days actually began on Dec 1, Saturday.

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Parag Khanna, founder of the FutureMap consultancy and author of the forthcoming book "The Future is Asian", noted that in speeches to domestic Chinese audiences, Xi is still promoting the economic self-reliance that Made in China 2025 symbolizes. For example, the Chinese statement (and official Chinese media) does not mention the 90-day deadline, only that tariffs will not be raised for the time being and that the two sides will negotiate.

The U.S. imposes a 27.5-percent tax on imported cars and light trucks from China.

In his briefing with reporters, Kudlow said he assumed that the Chinese would eventually drop their auto tariffs altogether.

China has hit back with similar tariffs on $110 billion worth of goods made in the United States.

"The resumption of talks between the United States and China is encouraging for our industry, as we are dependent on complex global supply chains for our marketplaces around the world".

Prospects in Congress for the new deal - the U.S. -Mexico-Canada Trade Agreement - were complicated by the midterm elections, which left opposition Democrats in control of the U.S. House.

Financial markets surged on the news of the ceasefire, with the benchmark Dow Jones Industrial Average up 1.2 percent, more than 300 points, about 30 minutes after the open, relieved that some of the immediate threat of further damage was averted. If an agreement isn't reached by the end of the period, current 10% tariffs on $US200 billion Chinese imports will jump to 25%, the White House said.

"This Statement is not a formal agreement, but the tone and direction seems very constructive for semis", said Stein in a note out on Monday.

The truce, although temporary, is a positive step towards a resolution to the US-China trade war. Earlier this year, for example, Trump approved a US$330 million arms deal with Taiwan, following up on a previous deal of $1.3 billion.

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