China' Commerce Ministry plans to remove soybean oil, rapeseed oil and palm oil from its import tariff quota management - Photo: Privacy.

JAKARTA (TheInsiderStories) – China plans to remove soybean, rapeseed and palm oil from its import tariff quota, the commerce ministry announced on Wednesday (08/07). The draft is open to public feedback until Aug. 22.

The commodities were removed from a draft tariff quota management list posted on the official website of the Ministry of Commerce, which means they will not be subject to restrictions which may be exacted on other products such as wheat, corn, and rice.

The news comes after the ministry said on Tuesday Chinese companies had stopped buying United States (US) agriculture products in response to President Donald Trump’s decision last week to impose 10 percent tariffs on another US$300 billion of Chinese imports, sharply escalating a tit-for-tat trade dispute between the world’s largest economies.

Trump has blamed repeatedly, in tweets and press conferences, that China is absorbing the cost of US tariffs on Chinese products. He said it again on Aug. 5, tweeting that “it is now even more obvious to everyone that Americans are not paying for the Tariffs—they are being paid for compliments of China, and the US is taking in tens of Billions of Dollars!”

Economic analyses, however, have shown that American consumers are bearing almost all of the cost of the tariffs. That’s because Chinese exporters haven’t cut prices significantly—their profit margins were already thin, and they’ve had little or no room for discounts.

China effectively cut prices on Aug. 5 by allowing its currency to weaken—and Trump is furious. The Treasury Department even took the extreme measure of officially labeling China a currency manipulator, echoing the president’s own language. While the designation doesn’t have many teeth, it’s likely to anger the Chinese and make a trade deal even harder to achieve.

Trump wants to shelter Americans from tariff-related price increases. But he also wants China to lose market share, which can only happen if Americans feel the pain of paying more for imports from China. But Trump can’t have it both ways.

Most analysts opined Trump doesn’t have a clear idea of how foreign trade works or even what his ultimate objective is and how to achieve it. He’s dragged the US into a trade and currency war that has no end in sight. Key US stock indexes fell almost 3 percent on Aug. 5 after the yuan’s depreciation.

“We did not enter this particular trade war with China with a clear plan for how to get out,” says Philip Levy, a member of President George Bush’s Council of Economic Advisers who’s now chief economist for freight forwarder Flexport. “The plan for how to get out seems to have been ‘We’ll threaten them, they’ll succumb, and then we’ll be happy.’ So far we haven’t seen anyone talk about what if they don’t succumb,” Levy told Bloomberg today.

Yuan’s depreciation, which amounts to nearly 5 percent since April had have become cheaper in dollars. The yuan depreciation seems to meet Trump’s requirement of making tariffs painless to American consumers. As a result, Trump could fall short of his oft-stated goal of bringing factory jobs back to the US on a massive scale.

At this point in the deepening conflict, Chinese President Xi Jinping can’t make big concessions to Trump, because he’d be perceived as knuckling under to a foreign aggressor. And Trump can’t bring other nations’ influence to bear, because he’s chosen to engage China directly rather than through the World Trade Organization.

The most important number in the financial world for the next few weeks will be the dollar-yuan exchange rate. On Aug. 6 the People’s Bank of China (PBoc) took a step back from confrontation. It set its daily fixing for the yuan at under 7 to the dollar. Nevertheless, traders are bracing for the possibility that the Chinese central bank could resume making way for a weaker yuan, which would help Chinese companies compete in global markets.

While the trade war is turning out badly for almost all American exporters, especially for farmers because China has halted purchases of US farm goods in retaliation for Trump’s recent tariffs.

Investors should take Trump at his word that he will move forward with the next round of tariffs on China. There are no signs that the president will walk back from applying as much pressure as he can come September.

The latest escalation in trade tensions drove the US 10-year Treasury bond yield down to 1.74 percent on Monday, its lowest level since 2016, as investors sought a haven from uncertainty.

US stock-index futures fell as China’s central bank set its daily currency fixing at a slightly weaker level than expected, reviving trade tensions.

S&P 500 Index futures contracts expiring in September dropped as much as 0.5 percent as the yuan weakened. Futures on the Nasdaq 100 and Dow Jones Industrial Average both retreated as much as 0.5 percent. The Chinese currency declined after the PBoC set the daily reference rate at 6.9996 per dollar.

US shares in New York recouped some of Monday’s declines as traders remained wary amid simmering trade friction. The S&P 500 Index jumped 1.3 percent on Tuesday after six days of losses.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com