Trump Delays China Tariff Increase as Trade Talks Approach

Date: September 12, 2019
Source: Bloomberg

MEMA Industry News Editor’s Note: MEMA has called for an agreement between the U.S. and China that will allow U.S. companies to remain competitive in a global marketplace while protecting intellectual property (IP) rights. MEMA has opposed a wide range of tariffs that impact the motor vehicle parts industry, including the third round of Sec. 301 tariffs imposed on imports from China, which included thousands of motor vehicle parts and materials. MEMA voiced concerns that these tariffs will have a disproportionate and significant impact on U.S. consumers who rely on affordable products for the repair and maintenance of their vehicles. Furthermore, the increased costs resulting from the tariffs will place a burden on small- and medium-sized businesses. To view MEMA’s previous comments on Sec. 301 actions, please visit MEMA’s Trade Resources page. For questions on Sec. 301 tariffs, please contact Catherine Boland.

President Donald Trump said he was postponing the imposition of five percent extra tariffs on Chinese goods by two weeks, a move that delays the next escalation of the trade war and brightens the backdrop for upcoming negotiations.

“At the request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary on October 1st, we have agreed, as a gesture of good will, to move the increased Tariffs on 250 Billion Dollars worth of goods (25 percent to 30 percent), from October 1st to October 15th,” Trump wrote Wednesday on Twitter.

Negotiators are due to meet in Washington in coming weeks to push forward talks to end the trade war, which is causing increasing economic damage as it stretches into its second year. There’s little sign that substantive progress is being made on the two countries’ differences, while Trump still has further tariff increases lined up.

“The negotiators have had a year to come to an agreement, and they remain structurally at odds on key issues,” said Andrew Polk, co-founder of research firm Trivium China in Beijing. “Another two-week reprieve doesn’t change those fundamentals.”

On Wednesday, China announced a range of U.S. goods to be exempted from 25 percent extra tariffs enacted last year. While that may create some good will in Washington, China is keeping the pressure on U.S. agricultural exports like soybeans produced in key Trump-supporting states.

An editorial Wednesday in the Communist Party-controlled Global Times newspaper said the exemptions were a goodwill gesture that would benefit some Chinese and U.S. companies. The paper’s editor tweeted that he saw Trump’s decision to postpone extra tariffs as creating “good vibes” for the early-October talks.

“Trump’s goodwill gesture suggests that the trade war is starting to bite and the U.S. may be more eager to close a deal,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte. in Singapore. “The clock is ticking and Trump’s approval ratings are sliding, with manufacturing now in recession.”

Trump escalated the U.S.-China trade war in August when he announced an increase in the levy on $250 billion of Chinese goods to 30 percent, from 25 percent, starting Oct. 1. Further increases are planned for December.

The delay “shows Trump doesn’t want to increase tariffs before the trade talks in early October, and it creates good conditions,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. “It adds to the hope that there’ll be good news from the October meeting, and markets will wait and see.”

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