US-China Trade War Diffuses as Both Agree to Roll Back Tariffs

US-China Trade War Diffuses as Both Agree to Roll Back Tariffs 

Post 16 months of trade war, China and the United States have agreed to roll back tariffs on each other’s goods in a “phase one” trade deal if it is completed, sparking division among advisers of US President Donald Trump. As per a US official, the rollback will happen after Chinese President Xi Jinping and Trump sign the “phase one deal”.

With this news, stocks globally took an optimistic turn, shuffling bond yields further high. Sources claim, Chinese officials expect the US to drop about 15 percent tariffs imposed on September 1, on $125 billion worth goods. Moreover, China is expecting a retrieval of the 25 percent tariffs on nearly $250 billion imports, including machinery and semiconductors to furniture.

As China announced plans to roll back tariffs, Beijing will be forced to end moratorium on purchases of US agricultural goods like soya beans. In turn, Washington must apply easy tariffs on imports from China. As per the International Monetary Fund (IMF), the easing trade war tensions could convince officials to revise forecasts of global growth in 2020. Earlier reports of IMF had shown significant fall in the global economy.

As investors continue to be hopeful, Dow Jones industrial average surged by one percent to 27,739 and S&P 500 bagged its second all-time high of the week, of 3,095. 

The statement by the Commerce Ministry of China is viewed to represent wishful thinking more than a specific agreement, as stated by a Hudson Institute expert acting as an advisory for Trump administration.

Amid fears of impeachment by the House and the upcoming re-election campaign, the Trump administration is under great pressure. Hence, most of the people aware of the deal are appreciating China’s move. William Reinsch, Senior Adviser at the Center for Strategic & International Studies, Washington said, “The Chinese have decided that Trump needs this more than they do, and they’re trying to do what they always do, which is pushing their advantages.”

The US-China trade war has hampered businesses globally. But Beijing has been able to overcome loss of US imports by purchasing oil from Saudi Arabia. Due to this, the Saudi oil facilities have been able to tame losses incurred from September 14 oil attacks. No matter where the trade war issues lead to, both the firms need oil which will ultimately benefit the Middle East.

Unless the trade war worsens the economic conditions of China and the US further to the point that they reduce their oil imports, the Middle East is likely to eat sweet fruits. Also, with the increasing tensions, many manufacturers in the US and China have been looking for safer havens, Middle East being a favourite for oil manufactures and exporters.

It is yet to be seen whether the proposed phase one deal will be actualised in reality or another truce will hamper the upcoming positivity!

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