While a cessation in hostilities is welcome, businesses have a lot of ground to make up, and few expect any further progress
The trade war with China is over; long live the trade war. That is the message from Donald Trump as the US president promotes a pact with Beijing that has both settled the frayed nerves of traders across the world’s financial markets and put those same traders on notice that the battle will continue for years to come.
This week the White House is expected to publish details of a first- phase deal that cuts the import tariffs from 15% to 7.5% on more than $100bn of Chinese imports as soon as the agreement is implemented. The deal is expected to be signed on Wednesday, although Trump said on Friday it might be “shortly thereafter”.
Meanwhile, China has agreed to spend at least $200bn a year on US produce, which cheered American farmers, who have been effectively locked out of China’s vast food market for more than 18 months.
And since 1 January, China has paved the way for an agreement that will cut tariffs on more than 850 products, from frozen pork to semiconductors. Calculations by Bloomberg showed that the tariff cuts will affect almost $400bn (£309bn) of foreign goods sold to China annually, out of its total import bill of $2tn. In addition, tariffs that Trump and trade representative Robert Lighthizer threatened to impose on mobile phones, laptops and other hi-tech products made in China will no longer apply.
As a truce, it works to calm an increasingly volatile situation ahead of what is expected to be a bruising election year. But it leaves much of the new high-tariff infrastructure in place. For instance, a 25% levy by the US on $250bn of Chinese goods – mostly parts for goods assembled in US factories – remains in effect.
Across the spectrum of imported goods, the average tariff on Chinese goods will fall to 19.3% – which is more than six times what it stood at before the trade war began in 2018, and still seven percentage points higher than a year ago, according to the Washington-based Peterson Institute for International Economics.
David Dollar, a China expert at the Brookings Institution thinktank in Washington, says the main benefit of the first-stage deal is that it puts an end to the almost monthly escalation of tariffs seen last year.
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