In an effort to ease rising tensions between the China and the U.S., Chinese President Xi Jinping announced that tariffs on automobile imports would be lowered “significantly” this year. The move, Xi says, is part of a “new phase of opening up” China’s large economy to foreign products.
China currently has the world’s second largest economy at nearly $12 trillion. The U.S. economy is the world’s largest at nearly $20 trillion.
Xi’s move seems to be a direct response to President Donald Trump’s demands that U.S. trade with China come more into balance. Last month the President announced $50 billion in tariffs on Chinese-made goods and subsequently asked China to reduce the trade deficit with America by $100 billion. It’s “the largest deficit of any country in the history of our world,” he said, adding, “It’s out of control.”
The Trump administration did not disclose which products or industries the tariffs would be leveled on, but assured the list would be “long.”
China responded by announcing $3 billion in tariffs on U.S. imports earlier this month. The Chinese tariffs are on 128 U.S. products ranging from fruit to meat to steal pipes. The majority of the goods will be subject to a 15% tariff, but some, like steel pipes, will be subject to a 25% tariff.
Fears of trade war have roiled markets in recent weeks. The Dow Jones Industrial Average dropped 700 points on the day President Trump announced tariffs against China and 500 points on the day China announced its retaliatory measures. In between there have been modest gains on the hopes that cooler heads would prevail.
The President campaigned on the promise of bringing the nation’s trade deficit into balance. “Past presidents should never have allowed this to happen. We got stuck with a lot of beauties, but we’ll fix them,” he said last month.
He’s also made similar complaints on Twitter. “When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE – going on for years!” he wrote earlier this week.
But for all of the fears of a spiraling-out-of-control trade war, the President’s negotiating tactics may be working. While warning against the adoption of “Cold War” mentalities with China, Xi called for conflicts to be solved through dialogue and not hostilities.
“China,” he said, “does not seek a trade surplus.”