The faceoff between the United States of America and China, stemming from COVID-19 is taking a new turn on the daily, signaling escalation of the existing trade tension between the two economic powers.
Each side has been walking hard to do what is best for their country. China has published a second batch of products to be exempt from the tariff war effective next week.
China made the announcement after the US president Donald Trump threatened to tear up phase one of the trade deal that was signed in January. Part of the deal has been a request for a level playing ground for the US companies in China and total stoppage of intellectual theft of the US’ tech inventions. The Trump administration believed that China’s compliance with these demands would close the trade deficit that stood at $345.6 billion in 2019.
Prior to the January truce between the two countries, the US had used tariffs to get China to agree to its terms. At the end of 2019, the US has imposed tariffs on more than $360 billion worth of Chinese goods. It was a terrain the Chinese government didn’t want to take as it was hurting its economy.
China believes the US doesn’t want her in the table of economic powers while the US believes that they have been cheated enough.
In an effort to keep its side of the bargain, China has listed 79 items to be exempt from tariffs. They include rare earth mineral ores, aircraft radar equipment, semiconductor parts, medical disinfectants and a wide range of chemicals, petrochemicals and metals.
The Trump administration has been pressuring China to increase the amount of goods it imports from the US to avoid further sanctions or imposition of new tariffs. In September 2019, the Chinese government announced the first batch of goods it exempts from tariffs. It included 697 products lines ranging from soybeans, pork and beef to liquefied natural gas and crude oil. These products were an integral part of the trade battle between the US and China. The phase one trade deal requires China to buy additional goods worth $200 billion from the US in the next two years.
The import and export ratio between the US and China has been severely disrupted by coronavirus. The Chinese import of US goods fell by 11% in April and 85.5% in March according to the Chinese custom data. The fall in the supply chain between the two countries appears to have triggered a new wave of kicking from the US.
China is the world largest importer of crude, but it has imported just $114 million worth of oil and petroleum products from the US in the first quarter of 2020. At the same time, it has bought $11.3 billion worth of oil from Russia and $10.7 billion worth from Saudi Arabia.
A Chinese official who did not want to be named said coronavirus pandemic has contributed to the little oil purchase from the US, as plummeted global demand for oil has given room to consideration to issues like transport fare.
“The US has another disadvantage in selling oil to China – the transport fee from the US to China could be $10 per barrel, which is a few bucks higher than that from the Middle East. A few bucks can make a huge difference now in oil deals with prices so low,” he said.
China’s attempt to make up for the gap through the purchase of American farm products failed. Chinese import of American soybean increased 210% in the first quarter of 2020, a $21.88 billion purchase according to data from the Chinese custom. But it didn’t measure up to calm the US nerves.
In this second batch of tariff exemption, Chinese importers must apply to the General Administration of Customs within six months of the announcement to be considered for waivers that will take effect from May 19.
As China pushes to open its economy from the ravages of the coronavirus pandemic, it is working hard to avoid US confrontation as it will result in a serious setback to its economy.
Though the shortfalls have been mainly as a result of the global pandemic, the US doesn’t want a lax implementation of the January’s trade deal. On Friday, a telephone meeting was held by top negotiators of the deal including the Chinese vice Premier Liu He and the US Trade Representative Robert Lighthizer for the first since the deal was signed in January. According to the statement issued by the Chinese State Media, the government is working to “create favorable conditions to implement the phase one trade deal.”
At the end of the meeting, both sides agreed to work out modalities to implement phase one of the deal, according to a statement posted on the state’s media website last week.
“Both sides agreed that good progress is being made on creating the governmental infrastructures necessary to make the agreement a success,” the statement said.
The January agreement compelled the US to cut the tariffs from 15 to 7.5% on $120 billion Chinese products. But the Trump administration appears to be standing on the sideline to reverse the tariffs or impose a new one if China fails to live up to the agreement.