Last night President Donald Trump tweeted that China had agreed to reduce tariffs. While The People’s Republic already lowered tariffs over the summer, it chose to cut the United States out of that deal as trade relations worsened. In fact, America found itself subject to an increased, 40-percent fine on imported autos while the rest of the world saw their tariffs eased. But the president seems optimistic.
“My meeting in Argentina with President Xi of China was an extraordinary one,” Trump explained in a follow-up post. “Relations with China have taken a BIG leap forward! Very good things will happen. We are dealing from great strength, but China likewise has much to gain if and when a deal is completed. Level the field!”
Meanwhile, China remains silent on the matter.
The stock market, on the other hand, is making noise. The announcement appears to have helped the share price of numerous automakers. General Motors and Daimler shares rose by more than 4 percent in premarket trading while Ford and Tesla increased by about 3 percent apiece. German manufacturers fared even better.
However, the important question here is whether China actually plans to reduce tariffs. Diplomats from the country have been silent, asking that all questions on the issue be forwarded to the Commerce Ministry. But that body is unlikely to say anything until later this week, when it holds its weekly news conference. This isn’t abnormal for China, as most public communications are gone over with a fine-toothed comb prior to release. The nation is extremely careful of what it says to the public (and vice versa).
There’s a chance that China is weighing its options. While it could certainly renege on whatever promise was made to the president, making him look ineffectual, it might not be a good idea to further worsen trade relations — especially with so little to gain.
Most American-branded vehicles sold in China are already built there via joint ventures with Asian firms. Only a small fraction are actually imported directly from the United States. China may feel it has less to lose by opening up the market at this juncture. However, that wouldn’t make the decision meaningful for automakers. “If they cancel the extra 25 percent tariff on U.S.-made cars, then we will see positive signs for imported cars,” Wang Cun, director of the China Automobile Dealers Association’s import committee, told reporters.
According to Reuters, the agreement went down following an extended dinner with Xi Jinping on Saturday in Buenos Aires. Trump agreed to postpone an increase in the tariff rate on $200 billion worth of Chinese imports to 25 percent from 10 percent that was scheduled for January. 1st. In exchange, China agreed to resume purchases of some U.S. farm and energy commodities.
While promising, that doesn’t exactly guarantee anything specifically relating to cars and still involves a 90-day period where the two countries discuss China’s policies on technology transfers, intellectual property protection, non-tariff barriers, cyber intrusions and theft, services and agriculture. We expect China to make an announcement by Thursday.