Source: Caixin Global

China and the United States announced a ceasefire agreement in their trade war after talks held in Geneva on Monday. Both sides will cancel most tariffs and countermeasures by Wednesday.

The U.S. will reduce the additional tariffs imposed this year on China from 145% to 30%, while China will reduce them from 125% to 10%. However, tariffs including those imposed under Trump's administration before April 2nd, as well as other restrictions such as the cancellation of tariff exemptions for low-priced packages by the U.S., seem likely to remain in effect.

The U.S. agreed to adjust or eliminate three presidential executive orders that collectively imposed 115% tariffs on Chinese imports.

Washington agreed to lower so-called "Liberation Day" tariffs from 34% to 10% for a period of 90 days, and to cancel all tariffs in subsequent rounds of escalation.

China also made a reciprocal response, canceling most tariffs imposed since April 2nd, leaving current tariff levels at 10%.

However, if tariffs imposed before April 2nd are included, China still faces a 30% tariff, including two rounds of fentanyl tariffs implemented in February and March.

Products exported by China, such as electric vehicles, steel, and aluminum, will continue to face other tariffs imposed over the past few years.

After the announcement, Wall Street stock futures surged, and the dollar rose.

Stock prices of the Big Seven tech giants soared significantly in pre-market trading.

Strictly speaking, this is not an agreement but a fragile ceasefire arrangement involving $60 billion in bilateral trade, which could easily break down due to new industry-specific tariffs announced by the Trump administration.

For example, it remains unclear where the U.S. restrictions on semiconductor exports to China are headed, nor is it clear how the review of America's electronic supply chain based on national security considerations will ultimately be handled.

Similarly, there is no clear mechanism to ensure that after the 90-day period ends in August, U.S. tariffs will not rise again to 54% and China's tariffs will not rise to 34%. Therefore, uncertainty in bilateral trade will persist.

China also promised to cancel non-tariff countermeasures taken against the U.S. since April 2nd, although it is unclear how some of these measures will be canceled.

As a retaliatory measure in April, China listed rare earth elements on its export control list, and the U.S. prioritized the cancellation of these restrictions due to supply disruptions in multiple industries.

China also launched anti-dumping investigations into DuPont's chemical business in China and placed some American defense and technology companies on a blacklist. The wording of the agreement indicates that these companies will be removed from the blacklist, which originally prohibited trade and investment with China, and the anti-dumping investigation will be suspended.

The statement only mentions canceling countermeasures implemented after April 2nd, so the more than ten companies blacklisted in March and the anti-dumping investigation announced against Google in February are not within the scope of cancellation.

Regarding rare earth elements, China's initial decision applied to all countries, so it is currently unclear whether it should be considered part of the countermeasures against the U.S.

The initial announcement from China's Ministry of Commerce did not mention the U.S., stating that export permits must be obtained before exporting seven categories of rare earth products.

Last month, Reuters reported that American customers were likely to go through a long and uncertain permit application process due to the impact of the trade war.

According to sources, the Sino-U.S. trade agreement does not cover the tariff exemption regulations for small goods from e-commerce companies.

The Trump administration terminated the tax-free treatment for low-priced goods sent from China and Hong Kong to the U.S. on May 2nd, allowing online shopping packages from mainland China and Hong Kong valued at less than $800 to enter the U.S. duty-free, and imposing a 120% tariff on such packages.

A trade expert said that the future of this policy remains unclear. Martin Palmer, co-founder of cross-border data service company Hurricane Modular Commerce, said, "There is absolutely no clarity regarding the minimum threshold. Logically, if you reduce tariffs on other goods, similar adjustments should also be made for minimum threshold packages, as they account for a very large proportion of China's exports to the U.S."

Both sides claim victory

Before the talks began in Switzerland, Trump posted on Truth Social saying that an 80% tariff on China "seems appropriate," but left the final decision to the Treasury Secretary.

When asked why the final outcome was much lower than this number on Monday, Greer said, "Everything is the result of negotiations."

"The president provided direction and suggestions on how to proceed, and we eventually reached a result that is very beneficial to the U.S. and also favorable to China," he told reporters.

Greer listed measures that remain in place as part of the ceasefire agreement, including a 10% global benchmark tariff applicable to all U.S. trading partners, and specific tariffs imposed during Trump's first term that have effectively reduced the U.S.'s bilateral trade deficit with China.

"Overall, we are in a very advantageous position regarding our current measures targeting Chinese imports. More importantly, this paves a constructive way for us to engage in positive dialogue with China on how to reshape the balance," Greer said.

U.S. Treasury Secretary Scott Beeson told CNBC that he believed Sino-U.S. negotiators would meet again in the coming weeks to discuss a more detailed trade agreement, but he was unclear about the exact timing of the next meeting.

Beeson stated that the U.S. has no intention of decoupling its entire economy from China but is committed to protecting its steel and semiconductor industries. He also expressed belief that China is now seriously addressing the issue of preventing fentanyl from entering the U.S.

He added, "We had very in-depth and productive discussions on the fentanyl issue," and suggested that the negotiations might lead to increased purchases of American products by China: "We hope to see China more willing to import more American goods. We expect that as negotiations progress, procurement agreements may also be reached to narrow our largest bilateral trade deficit and achieve balance."

Beeson said that this tax cut does not apply to sectoral tariffs imposed on all U.S. trading partners; tariffs imposed on China during Trump's first term will continue to be enforced. When asked how to avoid tariff increases after the 90-day period ends, Beeson said that the ceasefire agreement could potentially be extended: "Just like with other trading partners, as long as there is goodwill efforts, continuous engagement, and constructive dialogue, we will continue to move forward."

Mawa Kusin, an economist at Bloomberg Economics, said in a research report that today's actions "significantly reduce the shock of average U.S. tariffs on China," although remaining import taxes are still high and may continue to reduce U.S. imports from China by about 70% in the medium term.

China also stated that it would suspend or cancel non-tariff countermeasures taken against the U.S. since April 2nd. Clearly, this refers to the practice of listing seven types of rare earth elements on the export control list on April 4th.

Xinhua News Agency cited a national security white paper as saying that China always handles Sino-U.S. relations based on the principle of mutual respect. China is committed to the stable development of its relationship with the U.S. and believes that pressure and threats are not the right ways to deal with China's affairs.

In a research report, Song Lin, chief economist of Greater China at ING Bank, wrote, "This agreement significantly reduces tariffs without any concessions, and may be seen as a major victory for China."

At the same time the tariff cuts were announced, China released a white paper on national security, indicating that it will add more tools to its countermeasure toolbox and improve mechanisms to address sanctions and so-called "long-arm jurisdiction."

Uncertainty remains

Although the market is optimistic about recent developments, history shows that reaching a detailed agreement may still take a long time, or it may never happen. In 2018, both sides also announced a temporary suspension of disputes after one round of negotiations, but the U.S. later withdrew from the agreement, leading to additional tariffs and negotiations for the next 18 months, culminating in the signing of the "Phase One" agreement in January 2020.

China also failed to fully fulfill its purchase commitments in the agreement, while the U.S.'s trade deficit with China expanded during the pandemic, sparking the current trade war.

Greer clearly stated that the discussions over the weekend did not involve the Phase One Agreement, and it is currently unclear whether the Trump team will revisit or enforce that agreement.

He said, "The focus of this negotiation is how to reduce tariff levels to a range that neither constitutes a blockade nor allows the U.S. to continue advancing its goal of reducing the trade deficit."

In the next three months, both sides may seek progress on the 20% fentanyl tariff imposed on China early in Trump's second term.

According to informed sources, at some point during the weekend negotiations, Beeson took a pinch of sugar (as a metaphor for fentanyl) from a sugar bowl, placed it in his palm, and told the Chinese representatives, "This is enough to kill everyone in this room."

Then he took more sugar, saying, "This is enough to kill everyone in Geneva," and even more, "This could wipe out all of Switzerland."

Such straightforwardness reportedly shocked the Chinese delegation.

According to sources, Vice Minister of Public Security Xu Datong was also present.

Original source: https://www.toutiao.com/article/7503771165819716150/

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