US's President Donald Trump and China's President XI Jinping in their last meeting - Photo by The State Council The People's Republic of China

JAKARTA (TheInsiderStories) – United States (US) President Donald Trump and Chinese President Xi Jinping at the G-20 Summit have agreed a truce in the US-China trade war for a period of 90 days. During this period, both leaders have agreed that no further trade war escalation measures will be implemented.

Meanwhile, efforts to find a compromise trade deal will continue. With another US-North Korea summit being planned for early 2019, the US will be seeking China’s cooperation to facilitate a successful summit between President Trump and North Korean leader Kim Jong Un, in order to make progress towards a durable agreement for denuclearization of the Korean peninsula.

According to Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit, the 90-day truce is a positive outcome for the near-term Asia-Pacific trade outlook, as it averts the previous US plan to hike tariffs on USD 200 billion of Chinese exports to the US from 10% to 25% on January 1, 2019.

This large US tariff hike would have hit Chinese exporters hard, so it provides substantial relief for China’s export sector, at least temporarily. Such a large tariff hike would also have had significant transmission shocks for other Asian economies, due to the integrated Asian manufacturing supply chain providing raw materials and intermediate goods for China’s manufacturing sector.

The US-China trade truce also signals that renewed bilateral trade dialogue will intensify in early 2019 to try to find a compromise bilateral trade deal. However, China would need to agree to very substantial measures within 90 days in order to negotiate a compromise trade deal.

Key areas where China will need to make substantial offers to the US will be to significantly narrow the bilateral trade deficit as well as to substantially strengthen Chinese regulatory protection for the intellectual property rights of US firms. China has made substantial pledges at the US-China bilateral meeting at the G-20 Summit, to ramp up imports of US agricultural and industrial products, which will significantly narrow the US bilateral trade deficit with China.

President Trump and President Xi have also agreed that during the next 90 days, bilateral negotiations on structural changes will be conducted with respect to technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft.

He said, if a US-China trade deal cannot be reached within 90 days, the US administration has signaled that it would then ramp up the tariff rate on USD 200 billion of Chinese imports from 10% to 25%. Furthermore, President Trump has said that he may also consider imposing additional tariffs on all remaining Chinese exports, which amount to an additional US$267 billion of Chinese products.

Lurking in the background is a further major potential tariff measure relating to US auto imports from China. US Trade Representative Robert Lighthizer stated on November 28 that China imposes a tariff of 40% on US automobiles, much higher than the 27.5% tariff rate that the US imposes on imports of autos produced in China, and that he would be examining available methods to equalize the tariffs on autos.

The US Department of Commerce is also conducting an investigation of imports of autos and auto parts under Section 232 of the US Trade Expansion Act of 1962, which could result in potential remedies in the form of increased US tariffs on auto imports from some nations.

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