China currency rallies as Washington mulls easing of tariffs

White House considering a concession, rolling back levies on $112bn of Chinese imports

Chinese president Xi Jinping speaking during the opening of the China International Import Expo. Photograph: Qilai Shen/Bloomberg

Chinese president Xi Jinping speaking during the opening of the China International Import Expo. Photograph: Qilai Shen/Bloomberg

 

China’s renminbi broke through a key benchmark on Tuesday after the Financial Times revealed that Washington and Beijing were discussing removing tariffs in an attempt to pause their trade war.

According to five people briefed on the talks, the White House was considering a concession to China that would roll back levies on $112 billion of Chinese imports – including clothing, appliances, and flatscreen monitors – that were introduced at a 15 per cent rate on September 1st.

The US willingness to meet a longstanding demand for tariff relief from the Chinese comes as officials from the world’s two largest economies worked out the terms of a ceasefire to be signed in the coming weeks by Donald Trump, the US president, and Xi Jinping, his Chinese counterpart.

It suggests that both the US and China are hoping to craft a more ambitious and possible longer-lasting truce as early as this month than would have been the case in the absence of a tariff removal.

China’s currency strengthened to cross the all-important R7 per dollar mark on the news, before retrenching slightly. Three months ago, the renminbi had weakened across that level for the first time since the global financial crisis, triggering accusations from Mr Trump that China was manipulating its currency.

Progress in the US-China trade negotiations would take pressure off Beijing to let the renminbi drop to better cushion the impact of the trade war.

In exchange for removing existing levies, people briefed on the talks said Washington would probably expect something in return, including beefed-up provisions on the protection of intellectual property for US companies, greater certainty on the scale of Chinese purchases of US farm products and a signing ceremony for the agreement on American soil.

One person familiar with the matter cautioned that although there was a growing consensus within the Trump administration that they had to make a concession on existing levies, it was unclear whether the US president himself would agree.

Washington has already suspended a planned increase in tariffs on $250 billion of goods from 25 per cent to 30 per cent that was due to take effect on October 15th, after a visit from Chinese negotiators to the US capital in early October.

US officials have also suggested that Beijing could avoid the planned imposition of tariffs on $156 billion of mostly consumer goods due to hit during the holiday season on December 15th, if it struck a deal with Washington.

Chinese officials have frequently demanded that the US remove existing levies as a primary goal in the talks, but never succeeded in getting the Trump administration to move in that direction.

One person familiar with the matter said that officials in Beijing were looking not only for a rollback of the tariffs on $112 billion of Chinese goods imposed in September, but also a fraction of the 25 per cent levies imposed on $250 billion of Chinese goods since the start of the trade war last year, a more difficult concession for Washington.

Plans for Mr Trump and Mr Xi to sign what the US president has dubbed a “phase one” agreement at the Asia-Pacific Economic Cooperation summit in Chile on November 17th were thrown off course by the cancellation of the event because of civil unrest there. Officials have been trying to find alternative venues, with Brazil and the US considered the most likely options.

Within the US, the states of Hawaii and Alaska have been mooted, along with Iowa – an important state in the presidential election and one whose agricultural exports have been hit by the trade war.

Myron Brilliant, head of international affairs at the US Chamber of Commerce, the business lobby group, said there were incentives for both China and the US to reach a pact along those lines.

“Each side has decided that getting to this deal is important at this point and to get there is going to require some concessions. The administration is going to have to show some leg on tariffs and the Chinese are going to have to accept a more robust IP chapter,” Mr Brilliant said. – Copyright The Financial Times Limited 2019