BEIJING, (Reuters) – China on last week said it would halve additional tariffs levied against 1,717 U.S. goods last year, following the signing of a Phase 1 deal that defused a bruising trade war between the world’s two largest economies.
While the announcement reciprocates the U.S. commitment under the deal, it is also seen by analysts as a move by Beijing to boost confidence amid a virus outbreak that has disrupted businesses and hit investor sentiment.
Casting doubts over the immediate outlook, however, was the prospect raised in a local media report that Beijing could invoke a disaster-related clause in the trade agreement, which might allow it to avoid repercussions even if it cannot fully meet the targeted purchases of U.S. goods and services for 2020.
Washington welcomed the tariff cuts as a “big step in the right direction,” but said it expected China to live up to its obligations under the Phase 1 trade deal despite the outbreak.
“We’re monitoring the virus carefully,” U.S. Treasury Secretary Steven Mnuchin told Fox Business Network. “But based on current information, I don’t expect there will be any issues in them fulfilling their commitments.”
China’s finance ministry said in a statement that starting Feb. 14, additional tariffs levied on some goods will be cut to five percent from 10 percent and others lowered to 2.5 percent from five percent.
The ministry did not state the value of the goods affected by the decision, but the products affected by the new rule are among $75 billion of goods hit by Chinese tariffs of five percent to 10 percent tariffs that came into effect on Sept. 1.
In a separate statement, the finance ministry said the tariff reduction corresponds with those announced by the United States on Chinese goods that are also scheduled for Feb. 14.
Further adjustments would depend on the development of the bilateral economic and trade situation, the ministry said.
The reductions will also cut tariffs on soybeans from 30 percent to 27.5 percent, although some traders say the impact could be limited as the 25 percent tariffs remains in place. Duties on crude oil will fall to 2.5 percent from the five percent that was imposed in September.
The remaining tariffs were scheduled to kick in Dec. 15 but were suspended due to the interim trade deal.
“Any move to de-escalate is always good,” 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.”
The news buoyed financial markets, shoring up investor and business confidence at a time when the virus outbreak has cast deep uncertainty over the economic outlook.
The yuan hit its highest in two weeks, while Asian and U.S. stocks rallied following the announcement.
China’s finance ministry said it hopes both sides can abide by the trade deal and implement it to boost market confidence, push bilateral trade development and aid global economic growth.
While the proposed tariff cuts mark progress in Sino-U.S. trade ties, the virus outbreak has cast doubt over just how soon the Phase 1 deal could help the China’s slowing economy, and whether Beijing will meet ambitious targets for U.S. purchases.
China’s Global Times reported Beijing was considering using a disaster-related clause in the Phase 1 deal due to the coronavirus outbreak, citing an unnamed Chinese trade expert close to the government.
The Phase 1 deal text contains a disaster clause that allows for implementation delays in the event of a “natural disaster or other unforeseeable event.”
The U.S. Trade Representative’s office had not received any requests from the Chinese government to “discuss changes in China’s purchase commitments due to the coronavirus outbreak,” a spokesman for USTR said.
One Chinese official, who was not authorized to speak publicly, said the outbreak would likely affect implementation of the trade deal, with U.S. travel restrictions on Chinese people entering the United States alone curtailing trade flows.
U.S. Agriculture Secretary Sonny Perdue had said the United States would have to be tolerant if the coronavirus impaired China’s ability to increase purchases of U.S. farm products under the signed trade deal.