President Donald Trump and China’s President Xi Jinping have agreed to suspend new trade tariffs for 90 days to allow for talks, the White House announces.
At a post-G20 summit meeting in the Argentine capital, Buenos Aires, President Trump agreed not to boost tariffs on $200 billion of Chinese goods from 10% to 25% on January 1.
China will buy a “very substantial” amount of agricultural, industrial and energy products, the US says.
Meanwhile, China says the two sides agreed to open up their markets.
It was the first face-to-face meeting between President Trump and President Xi since a trade war erupted earlier this year.
The dispute broke out after President Trump complained China was doing nothing to cut its large surplus in bilateral trade.
At the summit in Buenos Aires on December 1, the G20 leaders agreed a joint declaration that notes divisions over trade but does not criticize protectionism.
Presidents Trump and Xi held a “highly successful meeting”, the White House said in a statement.
The White House says the US tariffs on Chinese goods will remain unchanged for 90 days, but warns: “If at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent.”
The US says China agreed to “purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other products from the United States to reduce the trade imbalance between our two countries”.
According to the White House, both sides also pledged to “immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft”.
President Trump said earlier this year he wanted to stop the “unfair transfers of American technology and intellectual property to China”.
According to the US, China has also signaled it will allow a tie-up between two major semiconductor manufacturers which Chinese regulators have been blocking.
The White House statement said China was “open to approving the previously unapproved Qualcomm-NXP deal”.
The US also says China agreed to designate Fentanyl as a controlled substance. The opioid – much of it thought to be made in China – is driving a huge rise in drug addiction in the US.
Both sides have imposed tariffs on billions of dollars’ worth of goods. The US has hit $250 billion of Chinese goods with tariffs since July, and China has retaliated by imposing duties on $110 billion of US products.
President Trump had also said that if talks in Argentina were unsuccessful, he would carry out a threat to hit the remaining $267 billion of annual Chinese exports to the US with tariffs of between 10 and 25%.
President Donald Trump’s proverbial trade war with China could have far-reaching effects as the new tariffs take hold. With the US now applying additional charges to $34 billion worth of Chinese imports, the Trump administration’s counterparts have responded in kind with their own tariffs. For many, the July 6, 2018 changes are the start of a potentially destructive tit-for-tat battle that could impact Asia as a whole. As they often do, the financial markets have reacted with price fluctuations for a myriad of commodities and stocks. From soy beans and coal to shares in major companies in both countries, the effects of the trade war are already hitting investors.
A Time for Options Traders to Invest
“Graph With Stacks Of Coins” (CC BY-SA 2.0) by kenteegardin
For options traders, a volatile market is a blessing in disguise. But what is options trading on commodities and stocks? It’s buying or selling assets based on a future price. When otherwise stable markets become volatile, traders looking to make a quick buck are often quick to invest. With the US and China typically standing strong as stable economies, the margins on import and export assets is usually fairly low. However, with Trump’s tariffs destabilizing the status quo and spooking businesses, prices now have the potential to vary wildly. Anyone with an interest in options trading now has the ability to capitalize on these unexpected fluctuations and cash in before harmony is restored.
However, when and, indeed, if harmony will be restored is unclear. While that may be good news for traders, it could spell disaster for business owners, consumers and, in turn, economies that rely on the US and China.
“Across Asia, there is a deep regional value chain […] So, trade tensions between the U.S. and China will have a spillover effect through this value chain,” Asian Development Bank’s Cyn-Young Park told CNBC in May.
Tariffs Threaten to Strangle the Asian Supply Line
“Forbidden City, Beijing” (CC BY 2.0) by romanboed
At the heart of the problem is the Asian production line. Although China heads goods exports to the West, it’s a head served by a network of intermediaries. In other words, countries across Asia are manufacturing semi-finished goods which are then sent to China. Once China’s businesses complete the chain, they sell them to the US et al and money trickles down. With Trump’s tariffs squeezing profits at the top, everyone further down the chain suffers. For Park, a meeting with local experts has identified a number of concerns. Assessing the data, the banker believes a 1% drop in China’s economic growth rate will reduce Asia’s financial status by 0.3%.
Of the countries currently eyeing up the trade war, the Philippines could be the most effected. As per the statistics from Malaysian bank RHB, 16.9% of exports from the Philippines go to China. If the new levies forces China to reduce trade with the US and slow production, it would impact almost one fifth of the Philippines’ GDP. For short-term options traders, the escalating tensions between the US and China could allow them to make hay while the sun isn’t shining. However, for Asia as a whole, the consequences could be dire.
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