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December 3, 2018

Trump talks with China give automakers hope

The US and China reportedly called a truce in their trade war on Saturday after President Trump agreed to hold off on new tariffs and President Xi Jinping pledged to increase Chinese purchases of American products.

By Olly Wehring

The US and China reportedly called a truce in their trade war on Saturday after President Trump agreed to hold off on new tariffs and President Xi Jinping pledged to increase Chinese purchases of American products.

According to the New York Times (NYT), the two also set the stage for more painstaking negotiations to resolve deeply rooted differences over trade.

The paper said the compromise, struck over a steak dinner at the G20 meeting in Argentina and announced in a White House statement, was less a breakthrough than a breakdown averted. The two leaders remain far apart on basic issues of market access and trade policy, and there was no sign that either planned to back down on those.

In a significant concession, the NYT said, Trump will postpone a plan to raise tariffs on US$200bn worth of Chinese goods to 25%, from 10%, on 1 January while the Chinese agreed to an unspecified increase in their purchases of American industrial, energy and agricultural products, which Beijing hit with retaliatory tariffs after Trump targeted everything from steel to consumer electronics.

The countries set an ambitious deadline of 90 days to reach a broader trade agreement, with the White House warning that if they did not come to terms by then, Trump would raise the existing tariff rate to 25%.

Trump tweeted: “China has agreed to reduce and remove tariffs on cars coming into China from the US. Currently the tariff is 40%.”

According to Seeking Alpha, Height Capital Markets sees the Trump auto tariff claim giving the biggest benefit to Daimler’s Mercedes-Benz and BMW due to the sizable level of SUV shipments to China from the US while Ford and General Motors have a smaller benefit because they already produce locally in China through joint ventures. Tesla is also a beneficiary since its China plant is seen as being at least two years away.

“The relationship is very special — the relationship that I have with President Xi,” Trump told reporters as he sat across a long table from the Chinese leader before dinner was served. “I think that is going to be a very primary reason why we’ll probably end up with getting something that will be good for China and good for the United States.”

The NYT noted German chancellor Angela Merkel of Germany was in an awkward position at the G20 summit because Germany, as a member of the European Union, cannot negotiate by itself with the US on trade issues.

“We have a tremendous trade imbalance but we’re going to get that straightened out,” Trump said before meeting Merkel on Saturday morning. “We all understand each other.”

The paper said China was quick to portray the agreement as a concession by Trump.

Wang Shouwen, the vice commerce minister, said the president had agreed to revoke his plan to raise tariffs on certain Chinese goods to 25%, according to Reuters.

The Chinese foreign minister, Wang Yi, said: “China is willing to expand imports according to the needs of the domestic market and the people,” which he said would “gradually ease the problem of trade imbalance”.

The paper noted that, of the roughly $250bn worth of Chinese goods targeted by tariffs, $50bn is already taxed at 25% while the remaining $200bn is taxed at 10%. As part of a series of tit-for-tat moves, Trump said he would raise the tariff for all goods to 25% and consider imposing tariffs on an additional $267bn worth of exports.

Some experts told the New York Times the forces Trump had set in motion with Beijing would be hard to restrain. The US is demanding sweeping changes in China’s trade policy, which the Communist government might find politically difficult to enact and impossible to enforce.

And the 90-day deadline is exceptionally ambitious for a trade agreement that has eluded negotiators for nearly two years.

“A halt in the tariff wars will be welcome but won’t alter the fundamental collision course that Trump and Xi seem to be on,” Daniel Price, a former trade adviser to president George W Bush told the NYT.

The White House, he said, continued to tighten export controls and to bar Chinese high-technology firms like Huawei from American infrastructure projects. It is also lining up other countries to clamp down on the forced transfer of technology to China — all steps that will provoke Beijing.

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