US president Donald Trump has scrapped plans to increase tariffs on Chinese goods, in an announcement that sees the year-long US-China trade war cool considerably.
The White House announced it would hold fire on raising tariffs on $200bn (£156bn) worth of goods from China. They had been scheduled to increase to 25 per cent from 1 January of the new year, but will now remain at the current 10 per cent rate.
The news came at the end of this year’s G20 summit in Argentina, after President Trump sat down for a working dinner with President Xi Jinping of China and their trade delegations in Buenos Aires.
In response to the freeze China has pledged to buy farm, energy and industrial goods, to reduce the country’s trade surplus with the US. The exact amount was “not yet agreed upon, but very substantial”, according to the White House.
Further negotiations about the most contentious aspects of Chinese trade policy were also announced. These include compulsory technology transfers, intellectual property theft, and non-tariff barriers.
If no agreement is reached within three months, the planned tariff increases will go ahead, the White House said. Wang Shouwen, China’s vice minister of commerce, said both sides will step up negotiations on eliminating the 10 percent tariff, according to Chinese state media outlet China Daily.
President Trump heralded the meeting as “amazing and productive", saying it brought about "unlimited possibilities for both the United States and China”.
The promise of a tough stance on China was central to Mr Trump’s election pitch. America’s trade deficit with China was $376bn in 2017, according to the US Census Bureau, which Trump argues hands too much power to China.
His tariff campaign against the country began in January 2018, and saw a 25 per cent tariff on steel imports imposed in March.
In a sign of what the trade thaw may mean for global market confidence, the American S&P 500 was up 4.14 per cent last week in anticipation of the meeting. However, the FTSE 100, whose listed companies are less exposed to the US and China, dropped 1 per cent on Friday.
Michael Hewson, chief market analyst at CMC Markets UK, said it was “the best we could hope for”, and called it “the status quo maintained”. Referencing Mr Trump’s fiery rhetoric, he said, “it’s all about actions as opposed to words … as long as there’s no escalations, markets will generally look past the words”.
The effect on global markets will become clear as they open tomorrow morning. Largely driven by concerns over heightening trade tensions, the S&P 500 is down almost six per cent from a record ever high in September.