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U.S. Retreats on Chinese Tariff Threats, Stocks Soar

The Wall Street Journal. logoThe Wall Street Journal. 5 days ago Josh Zumbrun, Vivian Salama, Alex Leary
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The Trump administration abruptly suspended plans to impose new tariffs on about $156 billion (£129bn) in goods from China, saying the move was driven by concerns about the impact an escalating trade fight would have on businesses and consumers ahead of the holiday shopping season.

The shift fuelled a rally on Wall Street, sending the Dow Jones Industrial Average up 1.44% to 26279.91. But it wasn’t immediately clear if the retreat marked a significant step toward resolving the more than yearlong trade conflict between the US and China.

Under the reprieve, the US agreed to postpone until Dec. 15 tariffs of 10% on smartphones, laptops, toys, videogames and other products that were set to take effect on Sept. 1. The value of those goods imported in 2018 was about $156 billion, according to a Wall Street Journal analysis.

Tariffs on other items, including tools, apparel items and some footwear, will still go into effect on Sept. 1. Those goods had a value of about $107 billion (£89bn) last year, according to the analysis. The U.S. said tariffs on some products, such as bibles and shipping containers, would be removed from the tariff lists entirely.

“We’re doing this for Christmas season, just in case some of the tariffs would have an impact on US customers,” Mr. Trump said on Tuesday.

But there were other influential factors, according to officials familiar with the decision, including the recent volatility in the stock market as trade tensions escalated this month. Before Tuesday, the Dow industrials had fallen by more than 1000 points since the disappointing trade talks in Shanghai in late July.

Video: China’s Economy Weakens Further as Trade Tensions Persist (Bloomberg)

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One official involved in the current talks said US importers complained they had already locked in purchases for seasonal goods from China and would have to swallow the cost of tariffs or pass them on to customers. Another senior administration official made the same point, and said the reprieve shouldn’t be seen as an olive branch toward Beijing.

The US is preparing to host China for face-to-face talks in Washington next month, that official said. But “these discussions aren’t going to go anywhere” if China continues to resist structural changes to ensure fair competition for US businesses, the official said.

The decision to suspend the tariffs came after a conference call between US and Chinese negotiators, including Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin.

According to a statement from China’s Commerce Ministry, the call was initiated by the US and the two sides agreed to meet by phone again in two weeks. The Commerce Ministry statement made no mention of plans for face-to-face talks.

Trade talks have been on a roller coaster since late May, when negotiations broke down. The US said China backed down on a pledge to make structural changes, such as legal measures to protect intellectual property, while Beijing said it wanted the US to remove existing tariffs before committing to an accord.

© Reuters

In recent weeks, negotiators have been working on a more limited deal that would have China agreeing to buy more US farm products and the US agreeing to ease off restrictions on China’s Huawei Telecommunications Co.

In Shanghai last month, however, negotiators failed to conclude even a partial deal. That prompted Mr. Trump on Aug. 1 to threaten a new round of tariffs, followed by Beijing’s decision to let its currency depreciate in value, which makes its exports less expensive, and to suspend purchases of US farm products.

Mr. Trump’s senior advisers, with the exception of trade adviser Peter Navarro, had all counselled the Republican president against escalating the tariffs.

Many business groups and lawmakers remain critical of Mr. Trump’s tariffs and the whiplash resulting from US-China trade relations lurching between reprieves and escalations.

Sen. Ron Wyden (D., Ore.) called Mr. Trump’s tariff policy incoherent and said it was “hitting American pocketbooks without changing China’s behaviour.”

Gary Shapiro, the chief executive of the Consumer Technology Association, said his group appreciated the administration’s decision to delay some tariffs. “But the uncertainty and volatility of policy based on tariffs is bad for American businesses and is bad for workers, families and the US economy,” Mr. Shapiro said.

Gallery: US-China Trade War: A timeline (Photos)

Myron Brilliant, the head of international affairs at the US Chamber of Commerce, which has fought Mr. Trump’s administration on tariffs, said the US pullback increases chances that a limited deal could be reached on US farm products and Huawei. “It gives both sides more breathing room,” Mr. Brilliant said, “as they look to get back on track.”

Hopes that China could resume buying US crops boosted shares of ethanol makers such as Green Plains Inc., which had banked heavily on Chinese demand for the corn-based fuel additive. Its shares were up nearly 5%.

Apple Inc. also saw shares rise more than 4%, since the decision means its iPhones made in China will be spared tariffs until at least December. Apple was among the companies that registered official complaints against the tariffs.

The US currently imposes tariffs of 25% on about $250 billion of Chinese imports, largely on items used by businesses. Mr. Trump has characterised those tariffs as a penalty on China, but they are paid by importers in the US.

The prospective tariffs would hit the majority of consumer goods imported from China that were spared in earlier rounds, partially to minimise the impact on US retailers. Many of those goods are primarily produced in China, making it harder for US businesses to avoid the tariffs. Nearly everything the US imports from China will be covered by tariffs if the September and December tariffs take effect.

The new tariffs, which are now being scaled back, have been described by Mr. Trump’s administration as affecting about $300 billion in goods. But actual trade in 2018 in the items affected by the tariffs was somewhat lower—closer to $262 billion—according to Wall Street Journal calculations.

Not all consumer items will avoid the tariffs until December. In many categories of goods, some items will avoid higher duties while others won’t. For example, tariffs on about $13.7 billion of fabrics and apparel were postponed until the end of the year, but tariffs will still move forward on about $39 billion of such items.

Tariffs will be postponed for about $22 billion of toys, games and sports equipment until December, but still hit about $5 billion of such items in September.

Explore the issues faced by the UK’s most vulnerable children and young people this summer and discover what you can do to help.

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