China and US agree to lift some tariffs in sign of trade war thaw

China and the US have agreed to remove some tariffs, according to Beijing, in a sign that the world's two biggest economic powers may be moving closer to reaching a trade war truce.

A Chinese commerce ministry spokesperson on Thursday said negotiators for both sides had agreed to remove some tariffs "in phases", raising hopes President Donald Trump and President Xi Jinping would be able to sign an agreement this year.

US and Chinese officials have been trying for most of this year to strike a deal to end – or at least pause – the 20-month trade war. They have been working towards what Mr Trump called a "phase one" agreement for the two presidents to sign at the Asia-Pacific Economic Cooperation summit in Chile on November 17th. But those plans were disrupted by the cancellation of the meeting due to the civil unrest in Santiago.

Gao Feng, the Chinese spokesperson, said gradually lifting tariffs could help "stabilise market expectations", according to state media. "As for how much will be eliminated in the first phase, that will depend on the content of the phase one agreement." The White House did not respond to a request for comment about the Chinese stance.

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Concession

Reports this week said the US was considering a concession to China that would roll back levies on $112 billion (€101.4 billion) of Chinese imports – including clothing, appliances and flatscreen monitors – that were introduced at a 15 per cent on September 1st.

China had long insisted that the trade war could only be eased if the US removed some of the tariffs Mr Trump has imposed since he started the economic fight last year. The move to remove tariffs comes as Mr Trump shifts focus to his re-election campaign amid concerns about the impact of the trade war on US consumers.

Markets were boosted by the Chinese comments, with analysts suggesting China had eased its demand that the US remove all existing levies as a precondition of any deal.

Hong Kong's Hang Seng index closed 0.6 per cent higher on Thursday. The onshore renminbi, which is permitted to trade 2 per cent on either side of a midpoint set daily by the Chinese central bank, closed 0.1 per cent stronger against the dollar.

Stocks

US stocks and government bond yields rose as investors’ risk appetite grew. The S&P 500 was up 0.6 per cent at 3,094.79 in midday trade – about 5 points shy of a record intraday high reached in the morning. The yield on the benchmark 10-year US Treasury climbed 13 basis points to a three-month high of 1.9417 per cent.

“Stock Market up big today. A New Record. Enjoy!” Mr Trump tweeted on Thursday.

While Mr Trump has focused on the stock market and record low unemployment, an FT-Peterson poll released this week showed that nearly two-thirds of Americans say they are not better off financially than they were when the US president was elected.

Tu Xinquan, a professor at the University of International Business and Economics in Beijing, said the Chinese government comments were a positive sign that both sides could reach a deal: "It's the first time the US compromises on tariffs".

The Chinese commerce ministry has previously said that trade tensions would only end when all additional tariffs were lifted from Chinese products.

"Beijing has stepped back a little bit by not insisting on having to get all the tariffs cancelled," said Zhu Feng, a foreign policy expert at Nanjing University.

But he said China would not be satisfied by a US offer to only remove duties imposed in September. "I think that they would want more than just the latest tariffs," said Mr Zhu.

Under pressure

Both sides are under pressure to reach an interim deal. While Mr Trump is eager to show US voters that his confrontational approach to China has succeeded, Beijing is suffering from a marked economic slowdown.

If a major rollback of existing levies were a part of a trade truce, the deal would have a broader beneficial economic impact at a time when officials around the world are fretting about a global slowdown.

Also on Thursday, a Chinese court jailed nine people, one of whom received a suspended death sentence, on charges of smuggling the opioid fentanyl into the US. The case is the first on which the two countries have worked together.

Washington has repeatedly criticised Beijing for not doing enough to stem the flow of fentanyl and its chemical precursors, which are often manufactured in China. Beijing said the cases were not connected to the trade war. – Copyright The Financial Times Limited 2019