China will halve tariffs on some $75 billion of imports from the U.S. later this month, reciprocating a U.S. action and likely satisfying part of the interim trade deal.
The cut will be effective from 1:01 p.m. on Feb. 14 in Beijing, according to a Ministry of Finance statement on Thursday, the same time as when the U.S. will implement reductions in tariffs on Chinese products. Punitive Chinese duties on American goods that were adopted from Sept. 1 last year will be lowered, with the rate on some dropping to 5% from 10%, and the others to 2.5% from 5%.
Both nations agreed to cut tariffs on each others’ goods as part of the phase-one deal signed last month. Even with the world’s two biggest economies pausing their trade war, duties remain on large parts of their bilateral trade with numerous other points of friction in the relationship. The ongoing coronavirus that has claimed more than 500 lives in China and sickened thousands is raising concerns that the Asian nation might have to cancel orders if the situation worsens.
China National Offshore Oil Corp. told some suppliers it won’t take delivery of liquefied natural gas cargoes it has agreed to, invoking what’s called force majeure to get out of the contracts.
The Jan. 15 deal has a clause that states the U.S. and China will consult “in the event that a natural disaster or other unforeseeable event” delays either from complying. Chinese officials are hoping the U.S. will agree to some flexibility on pledges in their phase-one trade deal, people familiar with the situation said, though it is unclear if such a request has been formally raised.
The U.S. is monitoring developments on the virus carefully and will have “a much better idea over the next two weeks,” Treasury Secretary Steven Mnuchin said Thursday on Fox Business Network. “Based on current information, I don’t expect there will be any issues in them fulfilling their commitments.”
Other retaliatory tariffs China has imposed on U.S. goods will remain, according to the statement. In the meantime, the Asian nation will continue processing applications for tariff exemptions, it said.
“We don’t see any impact from this tariff cut -- the measures are in line with what the U.S. side is doing,” said Li Qiang, head of Shanghai JC Intelligence Co. While China will continue to process waivers on farm product imports, it won’t remove its punitive tariffs if the U.S. maintains its duties, he said.
The yuan extended gains after news of the tariff reduction, with the offshore rate advancing as much as 0.3% to 6.9573 per dollar. Soybean futures traded in Chicago rose 0.4%. Brent crude futures in London climbed as much as 2.4%.
In the deal, China agreed to increase its imports from the U.S., including agricultural products and services, from 2017 levels by no less than $200 billion over the next two years. China is set to release January trade data on Friday, providing a first glimpse of this year’s imports from the U.S.
Economists estimate overall trade in January likely contracted due to the Lunar New Year holiday, while the outbreak of the coronavirus casts a cloud over the outlook for the coming months.
After the reduction, retaliatory tariffs on American crude oil will be lowered to 2.5% from 5%. Punitive tariffs on soybeans will go down to 27.5% from 30%, and to 30% from 35% for pork, beef, and chicken. These rates are higher as these goods were also hit with tariffs in 2018, which will remain in place.
“China hopes that both sides can comply with and implement the agreement to enhance market confidence, promote development of bilateral economic ties and facilitate global economic growth,” according to the statement.