US-China call trade war truce but existing tariffs still remain

China and the US have agreed to pause the ongoing tit-for-tat trade war for the next three months to negotiate deals to help ease tensions, offering temporary relief for the market, but the existing punitive tariffs are still in place for the time being.

Donald Trump and Xi Jinping at the G20 Summit in Argentina have agreed to call a truce in the two countries’ trade war (Photo source: China’s Ministry of Foreign Affairs)

The US president Donald Trump and Chinese president Xi Jinping struck a deal on Saturday evening during the G20 Summit in Argentina, agreeing to hold off further punitive tariffs in order to give the two countries some breathing room to hammer out deals to ease trade tensions.

Trump agreed that the US government would hold off on raising tariffs on US$200 billion worth of goods to 25% from a current level of 10%, which would otherwise take effect from 1 January next year.

Xi promised an unspecified increase of purchases of American goods, and according to Trump’s immediate tweet, China would also lower the current 40% tariff on US car imports.

Stock markets in Asia and Europe rallied following the news.

According to a BBC report, Chinese Foreign Minister Wang Yi told reporters after the talks that “the principal agreement has effectively prevented further expansion of economic friction between the two countries”.

The truce, however, does not mean that the two countries have agreed to remove punitive tariffs so far.

The tariffs that apply to a total of US$250 billion of Chinese goods targeted by the US since July are still effective, and the existing duties China has imposed on US$110 billion of US goods including wine and whisky remain unchanged.

Since 24 September, American wines exported to China have faced a 39% import duty rise alone, with the normal 14% import tariff and the additional 15% announced in April and the 10% announced early in September.

Added to the existing VAT and excise taxes on imported wines, American wine exports to China are subject to about 80% taxes, much higher than the 48% levied on regular imported wines.

Alberto Fernandez, managing partner of Torres China, told dbHK earlier this year following the tax hike: “After the double hike this year in taxes, the prospects for the success of our American wines in China are narrowing fast. Not only because they will lack value for money but also due to an ongoing political/social view on American products in general. This year we have already seen many of our agents lacking interest in them.”