Trade war truce: markets jump as Trump says China will halt new car tariffs

China has agreed to “reduce and remove” tariffs below the 40% level that Beijing is currently charging on US cars, Donald Trump has claimed, amid a trade war truce agreed by the two countries.

The US president and Chinese leader Xi Jinping agreed to halt new tariffs during talks in Argentina on Saturday, following months of escalating tensions on trade and other issues.

Trump indicated on Monday that China had made more concessions on automotive trade and wrote on Twitter: “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%”.

The apparently positive outcome of the two-and-a-half-hour talks between the pair boosted financial markets in Asia Pacific on Monday.

The benchmark Shanghai Composite index led the way with a rise of 2.57%, while Hong Kong was up 2.45% and Tokyo closed 1% better off. Australia’s benchmark ASX200 index finished the day up 1.84%.

The healthy increases paved the way for sharp rises on European and US exchanges later on Monday with futures trade seeing the FTSE100 opening up by 1.6% and the Dow Jones industrial average on Wall Street expected to leap 2%.

Trump gave no details about the car tariffs, and there was no immediate response from the Chinese government.

Neither country had mentioned the issue in their official read-outs of the Trump-Xi meeting which focused on a US agreement not to raise tariffs further on 1 January, 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, non-tariff 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 for a potential standoff at the end of March 2019.

Chinese state media gave a cautious welcome on Monday to the trade war truce.
But in an editorial, the official China Daily warned that while the new “consensus” was a welcome development and gave both sides “breathing space” to resolve their differences, there was no “magic wand” that would allow the grievances to disappear immediately.

“Given the complexity of interactions between the two economies, the rest of the world will still be holding its collective breath,” it said.

Analysts cautioned on Monday that the trade deal may have only bought some time for more wrangling over deeply divisive trade and policy differences, and said China’s economy would 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,” he said. “The existing tariffs are still having a negative impact on the Chinese economy, they haven’t gone away.”

His comments were borne out by figures released on Monday showing that China’s factory activity grew slightly in November, though new export orders extended their decline in a further blow to the sector already hurt by 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 ruling Communist Party’s official People’s Daily, warned people had to have realistic expectations.

“The Chinese public needs to keep in mind that China-U.S. 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 its editorial.

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