US-China Trade Truce, Put Simply

By Sophia Esquenazi

The United States and China have reached a temporary trade truce following months of escalating tensions over increased tariffs. In a meeting on Saturday, President Donald Trump and President Xi Jinping agreed to a 90-day extension on the imposition of US tariffs on $200 billion worth of Chinese goods.

Since July, the two countries have engaged in a trade war, with the US placing tariffs on $250 billion worth of goods and China retaliating with tariffs on $110 billion of US goods. This includes US vehicle imports, which currently have a 40% tariff, significantly affecting American car companies and causing them to raise prices, as China is the world’s biggest market for cars. The US claims that China’s trade practices are unfair and accuses the country of intellectual property theft, which prompted this hostility and placement of tariffs.

President Trump previously threatened to increase tariffs from 10% to 25% on Chinese imports starting on January 1, however, in agreeing to halt any new duties, the US and China are preventing an escalation of the hostility and trade war.

In a tweet, President Trump said that “China has agreed to reduce and remove tariffs on cars coming into China from the U.S.” He also expressed that farmers will greatly benefit from the deal, as China intends to purchase US agricultural product immediately. Chinese officials responded, saying they are confident in implementing trade commitments as soon as possible.

Markets rallied following the announcement, with US stocks closing higher on Monday and major indexes in Shanghai, Hong Kong, France, Germany, and the UK jumping. Technology and automotive stocks particularly benefited, as hope increased for relief from current tariffs. This quickly took a turn on Tuesday, however, after President Trump wrote on twitter that “We are either going to have a REAL DEAL with China, or no deal at all... Ultimately, I believe, we will be making a deal - either now or into the future....” The uncertainty caused markets to fall in the US, Asia-Pacific, and Australia.

Analysts are still doubtful on the effectiveness of the 90-day extension in arriving at an agreement. Chief market strategist for Asia Pacific at JPMorgan Asset Management, Tai Hui, said, "The negotiation is likely to remain challenging given the competition in a number of areas, especially technological development. 90 days is not very long to resolve these differences." The truce does not remove tariffs currently in place, however it does prevent tariffs from rising. While the future of the trade war is unclear, a truce provides a pause in the trade tension between the US and China.

Sources and Further Reading

Image: Wolfgang Staudt @flickr

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