Xi Jinping, left, and Donald Trump. File photo: REUTERS
Xi Jinping, left, and Donald Trump. File photo: REUTERS

China has agreed to “reduce and remove” tariffs below the 40% level Beijing is currently charging on US-made vehicles, US President Donald Trump said, as a trade-war truce between the two countries gathers pace, cheering markets.

Trump and Chinese President Xi Jinping agreed to hold off on new tariffs during talks in Argentina on Saturday, declaring a truce following months of escalating tensions on trade and other issues.

In a meeting lasting two and a half hours, the US agreed not to raise tariffs further on January 1, while China agreed to purchase more agricultural products from US farmers immediately.

The two sides also agreed to begin discussions on how to resolve issues of concern, including intellectual property protection, nontariff trade barriers and cyber theft.

But the White House also said the existing 10% tariffs on $200bn worth of Chinese goods would be lifted to 25% if no deal was reached within 90 days, once again setting the clock ticking.

Tweeting on Sunday night, Trump said: “China has agreed to reduce and remove tariffs on cars coming into China from the US. Currently the tariff is 40%.” He gave no details.

Chinese regulators did not respond to requests for comment on what would be a potential boon for carmakers including Tesla and BMW, which manufacture in the US for export to China.

Neither country had mentioned automotive tariffs in their official read-outs of the Trump-Xi meeting.

Speaking in Beijing, Chinese foreign ministry spokesperson Geng Shuang reiterated comments from the government’s top diplomat state councillor, Wang Yi, who said on Saturday the ultimate goal was the lifting of all tariffs.

“The consensus reached by the leaders of our two countries is to halt the imposition of new tariffs and at the same time the two sides’ leaders instructed the economics teams of both sides to intensify talks towards the removal of all tariffs that have been imposed,” Geng told a daily news briefing.

Chinese shares, commodities and the yuan currency surged even as uncertainty remained about the deal.

The benchmark Shanghai Composite index closed 2.6% higher at 2,654.80 points and the blue-chip CSI300 index jumped 2.8%. Both posted their best daily gains since November 2.

Still, analysts cautioned the deal may have only bought some time for more wrangling over deeply divisive trade and policy issue, and said China’s economy will continue to cool regardless under the weight of weakening domestic demand.

“This is a relief rally,” said Paul Kitney, chief equity strategist at Daiwa Capital Markets in Hong Kong.

The agreement “is not a ceasefire, it’s just a de-escalation. The existing tariffs are still having a negative impact on the Chinese economy, they haven’t gone away.”

China’s factory activity grew slightly in November, a private survey showed on Monday, though new export orders extended their decline in a further blow to the sector already hurt by the Sino-US trade frictions.

“It’s 90 days. It’s nothing and it doesn’t really make any difference. People have already started to reconsider their sourcing arrangements,” said Larry Sloven, who has been sourcing and manufacturing in China for three decades.

“Nobody wants to live in a false reality.”

Widely read Chinese tabloid the Global Times, published by the  Communist Party’s official People’s Daily, warned people had to have realistic expectations.

“The Chinese public needs to keep in mind that China-US trade negotiations fluctuate. China’s reform and opening-up’s broad perspective recognises that the rest of the world does things differently,” it said in a Monday editorial.

Differing accounts

There are also differences in the Chinese and US accounts of what was agreed.

The White House said China was “open to approving the previously unapproved” deal for US company Qualcomm to acquire Netherlands-based NXP Semiconductors “should it again be presented”.

However, Qualcomm said in a statement it considers the matter closed.

The Qualcomm issue was not addressed by the Chinese government’s top diplomat at a news conference in Buenos Aires on Saturday night.

In July, Qualcomm — the world’s biggest smartphone-chip maker — walked away from a $44bn deal to buy NXP after failing to secure Chinese regulatory approval, becoming a high-profile victim of the China-US trade dispute.

There was also caution from the US business community.

William Zarit, chair of the American Chamber of Commerce in China, said the outcome of the meeting was as good as he could have expected considering the complex issues involved.

“But probably the most challenging area to resolve — China’s discriminatory economic policies based on state support and domestic market protectionism — needs to be addressed in order to level the playing field and have a sustainable commercial relationship based on fairness and reciprocal treatment.”

A senior official at Chinese energy giant CNOOC said China is not likely to increase energy and industrial product purchases from the US by a significant amount in 90 days unless there are mandatory instructions from the government forcing companies to buy.

“Trump’s policy has been so unpredictable that Chinese companies are being very cautious on buying US commodities with or without tariffs. The risks are simply too big and companies have became more averse to risks now,” the official said. “I am expecting the US to increase tariffs on China after 90 days despite the efforts and goodwill from China.” — Reuters