On Friday, China announced it will cut heightened tariffs imposed on American-made cars by 25 percent. The move, which will last for 90 days starting Jan. 1, is part of the truce that President Trump and Chinese President Xi Jinping agreed to at the G-20 summit in Argentina.
Cutting the tariffs is a welcome development — and one that, along with the other provisions of the truce, highlights what is and is not likely to be achieved in any final agreement with China.
As Trump and Xi went head to head with a tit-for-tat trade war kicked off with tariffs imposed by Washington, one hard-hit industry included auto manufacturers. Where China had originally charged a 15 percent tariff, that was jacked up to 40 percent, dealing a blow to the industry. Now that’s been cut temporarily down to 15 percent. The U.S., however, has not signaled that it would cut its current 27.5 percent tariff on Chinese vehicles.
Although the auto trade between the two countries is relatively small, Trump heralded the reduction in tariffs as part of the path to victory. In a Friday tweet he said, “China wants to make a big and very comprehensive deal. It could happen, and rather soon!”
China just announced that their economy is growing much slower than anticipated because of our Trade War with them. They have just suspended U.S. Tariff Hikes. U.S. is doing very well. China wants to make a big and very comprehensive deal. It could happen, and rather soon!
— Donald J. Trump (@realDonaldTrump) December 14, 2018
But if the truce and the modest reduction in tariffs are any indicator of a deal to come, it’s likely to be far less comprehensive than Trump would have us believe.
In part this is because Washington has set the expectations rather high with Vice President Mike Pence suggesting in November that a deal would have to include fundamental changes to China’s economic and therefor political model.
That’s an unlikely outcome as it would threaten Xi’s leadership and undermine the ruling Communist Party as well as the model that has under-girded Beijing’s economic success.
Instead, what is far more likely is a modest reduction in tariffs and a few additional concessions from Beijing on key issues like the intellectual property protections and forced technology transfer — a sort of China version of the renegotiated NAFTA deal.
Such an agreement would allow Trump to claim a dealmaking victory while also achieving some real results, but hardly enough to justify the economic pain and damaged relationships born out by the process.
