The Chinese government has been locked in a conflict with the US, and while many people have focused on the real and perceived as well as claimed strengths of China, I have consistently said that China is actually very weak and could collapse quickly for many reasons, but the simple explanation is that the US holds the world’s reserve currency, China holds our debt as well as relies on the US as the manufacturing export destination. No matter what the US does, China’s fate is tied to her, and any political crisis that comes could be blamed on her. She loses no matter what happens.
After much fighting and resistance with agricultural commodities, the coronavirus scandal seems to have broken the Chinese will in the trade war, with the world losing confidence in her abilities to control her people based on the miserable perception management of the spread of the virus. Not surprisingly, the Chinese have quickly submitted to the US, slashing tariffs by 50%.
While global equity futures continue to soar amid a return of the “coronavirus is contained” following reports that new drugs are in the pipeline to treat the deadly disease on Wednesday, China’s economy is expected to print sub-5% GDP in Q1. This has forced an increasingly desperate Beijing to unexpectedly announce on Thursday that it will slash tariff levied on 1,717 U.S. goods by up to 50%.
China’s finance ministry stated that on Feb. 14, additional tariffs levied on some goods will be reduced from 10% to 5%, and others lowered from 5% to 2.5%, reported Reuters. The finance ministry didn’t explicitly state the value of goods affected by tariff reductions.
In a separate statement, the ministry said tariff reductions would mostly be for products announced during the trade war. They said further tariff adjustments could depend on the bilateral economic and trade situation.
The ministry said soybean tariffs would be reduced from 30% to 27.5%. Tariffs on crude will be halved from 5% to 2.5% after Feb. 14.
“Any move to de-escalate is always good. Especially when the market is overwhelmed by the news about virus, good news about tariff is refreshing,” said Tommy Xie, head of Greater China research at OCBC Bank in Singapore.
“The announcement shows China’s commitment to implement the phase one trade deal despite the disruptions from the recent virus outbreak,” said Xie.
Hu Xijin, the editor from the China Global Times, tweeted Wednesday asking the U.S. to give China some slack in the phase one trade agreement. This could mean China’s expected $200 billion in U.S. purchases over the next two years might not happen. (source)