Trump and Xi agreement buys time in trade war

TRADE WAR: Europe and Asia stock markets higher as China and US agree CEASEFIRE

Trump and Chinese President Xi Jinping agreed to halt new tariffs during talks in Argentina on Saturday, following months of escalating tensions on trade and other issues.

President Donald Trump on Sunday announced that China had agreed to rollback its tariffs on American automobiles below 40 percent.

China has agreed to "reduce and remove" the 40-percent tariff it slaps on new cars imported from the United States, president Donald Trump wrote in a Twitter post.

But Mnuchin said, "I think there's no question the president's tariff strategy has worked".

This year, Trump imposed an import tax of 25 percent on $50 billion in products, then hit an additional $200 billion worth of goods with 10 percent tariffs.

U.S. Trade Representative Robert Lighthizer said last week he was examining all available tools to raise U.S. tariffs on Chinese vehicles to the 40 percent that China was charging on U.S. -produced vehicles.

Later that month, China reduced the tariff rate to 15 percent on all imported vehicles while raising it for USA cars to 40 percent. There, all sides agree, the American president agreed to postpone an increase in tariffs on Chinese imports to 25% from 10%, which was scheduled to take effect Jan 1, in exchange for negotiations on broader economic disputes.

While Trump cited the US trade deficits with foreign nations as a reason for implementing the tariffs, the USA trade deficit with China has increased since the tariffs were announced.

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"The prospects for real progress on substantive issues with China are now better than at any point in the Trump administration", said Andy Rothman, investment strategist at Matthews Asia.

The Trump administration also said China would purchase "a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries".

Despite the questions, US President Donald Trump was in an ebullient mood, promising benefits to US farmers and auto companies. "For this it has gained a 90-day reprieve, during which time both sides have pledged to ramp up talks". And China's leader will likely expect compromise on complex territorial issues like Taiwan or the South China Sea before the ceasefire will begin to look like a full-fledged peace accord.

Both sides gained from hitting the pause button, with Trump avoiding further hits to USA agricultural exports, and Xi staving off an escalation of the pressure that higher tariffs would place on his country's slowing economy.

Hong Kong's Hang Seng index is up 2.8 percent, while futures are pointing to a higher open in North America.

His comments were borne out by figures released on Monday showing that China's factory activity grew slightly in November, though new export orders extended their decline in a further blow to the sector already hurt by trade frictions.

But as trade tensions ratcheted up with the U.S. this summer, Beijing retaliated by slapping vehicles imported from the United States with an extra 25 per cent tariff, bringing the total tariff rate to 40 per cent.

The 90-day truce in the escalating trade war between the US and China came during a dinner meeting between the two presidents following the G-20 summit of the world's biggest economies in Buenos Aires. Earlier this year, for example, Trump approved a US$330 million arms deal with Taiwan, following up on a previous deal of $1.3 billion. China imported 280,208 vehicles, or 10 per cent of total imported cars, from the US last year, according to China's Passenger Car Association.

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