SINGAPORE (Feb 6): China’s Ministry of Finance announced that it will be halving its tariffs on some US$75 billion ($103.5 billion) worth of imports from the US, effective from Feb 14. This Valentine’s Day, China will be extending an olive branch and lowering its punitive tariffs on American goods.
The tariffs were implemented on Sept 1 last year. Some of the rates will be dropped to 5% from 10%, while others will be lowered to 2.5% from 5%.
The move is in response to the US also implementing reductions in tariffs on Chinese products, as part of the ongoing interim trade deal between both countries. The two nations in January signed phase-one of the deal, which brought a pause to the trade war and would cut tariffs on the others’ goods.
In the deal, China also agreed to increase its imports from the US, including agricultural products and services, from 2017 levels by no less than US$200 billion over the next two years.
Following the tariff reduction, China aims to lower retaliatory tariffs on US crude oil to 2.5% from 5%; soybeans to 27.5% from 30%; and pork, beef and chicken to 30% from 35%. These rates are higher as these goods were also hit with tariffs in 2018, which will remain in place.
However, the trade war is far from over as tariffs are still in effect on large parts of the bilateral trade and other points of friction are still present between both countries. The other retaliatory tariffs China had previously imposed on US products will still remain, but China says that it will continue to process applications for tariff exemptions.
Commenting on China's move to lower tariffs, Stephen Innes chief market strategist at AxiCorp says, "The significance of the olive branch in the market eye is the announcement that comes a day after President Trump's statement of the union address, where he called the current US-China relationship 'the best'. A small but rather a sweet carrot to dangle as both parties move on to Phase 2 of the trade deal negotiations.
"And in the wake of the Coronavirus economic tumult, it is not much of a stretch to assume China is eager to start the negotiations. It is a good start but investors have an extreme marathon to endure before the finish line comes in sight. Nonetheless, it seems like China is digging deep into its magic policy bag as a cure-all for the coronavirus knockdown," he adds.