ibusinesslines.com December 17, 2018

China trade war truce: 2 reasons why it's unlikely to last

05 December 2018, 04:33 | Kelvin Horton

China and US declare temporary truce after Trump, Xi summit

TRADE WAR: Europe and Asia stock markets higher as China and US agree CEASEFIRE

USA stocks rose on Monday after President Donald Trump and Chinese President Xi Jinping called a truce in the countries' ongoing trade war.

After President Donald Trump announced steep tariffs on all imports of steel and aluminum, China slapped retaliatory tariffs on the U.S. The Trump administration responded with more tariffs targeting Chinese goods, and China replied with more tariffs of its own.

China and USA declared a 90-day trade truce on Saturday after talks between Chinese President Xi Jinping and his U.S. counterpart Donald Trump on the sidelines of the G20 summit in Argentina.

China, the world's largest car market, raised tariffs on U.S. auto imports to 40 percent in July, forcing many automakers to hike prices in a major hit to the about US$10 billion worth of passenger vehicles the United States sent to China past year. China raised its tariff on auto imports from the US from 15 percent to 40 percent in retaliation for Trump administration tariffs on imports from China.

Later that month, China reduced the tariff rate to 15 percent on all imported vehicles while raising it for USA cars to 40 percent.

"On trade, President Trump has agreed that on 1 January 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time". China responded with tariffs of its own on various USA exports.

"My meeting in Argentina with President Xi of China was an extraordinary one", Trump said on Twitter.

In return, China is to purchase "very substantial" amount of agricultural, energy, industrial and other product from the US.

The US leader tweeted on Sunday that China had agreed to scale back tariffs on cars, but he did not explain which would be removed and which would be reduced.

Stein added that he is "surprised" to see Xi's positive message on the deal between Qualcomm and NXP Semiconductors, but he still worries about the longer-term situation for chipmakers given that the current 10% tariffs have already hurt demand and the result of the discussion on non-tariff barriers remains unclear.

Both sides will also endeavour to complete these actions within the next 90 days. Ford decided not to import a crossover-ized Focus from China, Volvo began sourcing the XC60 from Sweden rather than from China, Buick considered canceling the American-spec Envision, and Cadillac stopped selling the hybrid CT6 it builds on the outskirts of Shanghai. By midyear, soybean exports to China were down by 20.5%, according to CNBC.

Minutes later, the president specifically tied his self-congratulation to what he predicted will be a dramatic increase in farm exports from the U.S.to China. The truce in the trade war will offer a space for intense negotiations between the two giants to deal with the bilateral trade issues.

"This is not a suspension of the trade war but a suspension of the escalation of the trade war", he writes and "big questions remain about the preparedness of Beijing to allow global access to this enormous market to a level that would satisfy the Trump administration prompting a complete halt in the trade war".

Global stock markets have jumped following the truce in 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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