The Chinese national flag flies on the roof of a Ford car dealership in Beijing, China October 11, 2018. To match Exclusive CHINA-AUTOS/DEALERS. REUTERS/Thomas Peter
The trade spat comes as the US steps up pressure against China across the board © Reuters

China has agreed to cut tariffs on imported American cars from 40 to 15 per cent, the first concrete sign of a cooling in the trade war between the world’s two largest economies since Xi Jinping and Donald Trump agreed to a 90-day truce this month. 

Liu He, the top Chinese economic official, conveyed the decision to Steven Mnuchin, US Treasury secretary, and Robert Lighthizer, US trade representative, in a call on Monday evening, according to a person familiar with the details of the conversation.

Worries about the prospects for a peaceful resolution to the trade dispute have rocked markets since the truce was agreed at the G20 summit in Argentina, with investors questioning whether the US and Chinese presidents would make substantive progress in the three-month ceasefire.

China’s agreement on the auto tariffs was first reported by The Wall Street Journal.

The move returns to the tariff levels set by Beijing earlier this year. China cut its tariff on vehicle imports — including those from the US — from 25 per cent to 15 per cent on July 1. But only a few days later Beijing raised tariffs on imports of US cars to 40 per cent in response the Washington imposing higher tariffs on $34bn of imports from China on July 6.

Despite the new concession, top US and Chinese officials will not hold face-to-face trade talks until January, underscoring the tight timeline facing the countries as they try to meet a self-imposed deadline for a deal. 

US companies and advocates of ending the trade war wanted Mr Liu to come to Washington this month to help kick start the trade talks, and the powerful Chinese negotiator had been expected to visit the US capital this week.

But one person familiar with the situation said Mr Liu would not come this year, partly because the US holiday season is near. He is also hamstrung by a series of key economic events that prevent him from leaving China.

Another person familiar with the talks said the timing issue on both sides made it almost impossible to meet in person. China will also shut down for several days in February for its lunar New Year celebrations, which will further reduce the window to reach a deal.

The solidity of the trade truce was called into question almost immediately after it was reached at the G20. Chinese and US officials emerged from the talks with different interpretations of what commitments were made, a confusion that White House officials struggled to resolve in public comments early last week.

The trade spat comes as the US steps up pressure against Beijing across the board, taking the Chinese government to task for intellectual property theft, forced technology transfer and complaining about traditional and cyber espionage. While China has been surprised at the increasingly hawkish stance, it still hopes to reach a deal on trade.

The slow start to negotiations, with the first phone call occurring 10 days after the Trump-Xi summit, has added to concern about the willingness of both sides to bridge the divides.

When last week’s arrest of a top Huawei executive in Canada for allegedly violating US sanctions was disclosed, the outlook for a sweeping deal by March 1 soured further. Meng Wanzhou, Huawei’s chief financial officer, has been detained pending a US extradition request.

“Given the level of public outrage in China over Meng’s arrest, Beijing will probably want a cooling-off period before sending him [Liu He],” said Dennis Wilder, former top CIA China analyst. “Many Chinese are outraged that a company they take great national pride in has been targeted. While the Chinese leaders are attempting to wall off the trade talks they are having to walk a fine line.”

Optimists will point to some encouraging signs. Both China and the US have tried to dismiss worries that the Huawei case would have any bearing on the negotiations. Mr Lighthizer said the arrest of Ms Meng was a criminal justice matter that “shouldn’t really have much of an impact” on the trade talks.

Moreover, there are signs Beijing is preparing to deliver on another of its pledges from the Argentine dinner between Mr Trump and Mr Xi: a resumption of purchases of US agricultural products.

Analysts said that just as Mr Trump took some by surprise by seeking out a truce with Mr Xi last month, he may be more inclined to sign a lasting peace agreement than the China hawks in his administration, partly out of political calculations. 

“It is obviously Trump’s decision in the end . . . and at least at the moment he is being more conciliatory in his rhetoric than Lighthizer,” Beacon Policy Advisors, a Washington-based consultancy, said in a note to its clients. “He is concerned about the impact of the trade tensions between the world’s two largest economies on the stock market, which he views as an important bellwether of his performance, and thus also of his re-election prospects.” 

Additional reporting by Hudson Lockett in Hong Kong

Follow Demetri Sevastopulo on Twitter: @dimi

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