Trade truce with China means big changes in Beijing policy

Trump wants to kill electric car development

Trump agreed to hold off on plans to raise tariffs January 1 on $200 billion in Chinese goods.

Trump tweeted late Sunday that 'China has agreed to reduce and remove tariffs on cars coming into China from the U.S. now the tariff is 40%.' There was no Chinese announcement about possible tariff cuts, and the Ministry of Commerce in Beijing didn't immediately respond to questions.

Buyers and analysts quickly pointed out on Monday that China's tariffs on US farm produce are still in place, mostly 25 per cent duties on soybeans, corn, sorghum and wheat.

Chinese state TV says agreement has been reached with the U.S. not to impose any additional trade tariffs after 1 January and talks will go on.

United States company Tesla saw its sales drop with the higher prices this fall and recently said it would absorb some of the higher tariff costs and no longer pass them on to consumers.

Vehicle sales in the world's second-biggest economy declined for a fifth consecutive month in October, bringing the market closer to its first annual drop in at least two decades.

Trump tweeted late on Sunday that China promised to drop the 40 per cent auto tariffs.

Nevertheless, the better-than-expected outcome should help reduce near-term uncertainty and improve market sentiment.

Chinese shares, commodities and the yuan currency surged even as uncertainty remained about the deal.

The US and China have been locked in a bitter trade war for several months with the two economic powerhouses sparring in a tit-for-tat slapping of sanctions on each other.

Still, analysts cautioned it may have only bought some time for more wrangling over deeply divisive trade and policy differences, and said China's economy will continue to cool regardless, under the weight of weakening domestic demand.

Trump also said he would shortly be providing formal notice to Congress that he will terminate the North American Free Trade Agreement, giving lawmakers six months to approve the replacement he signed Friday.

The two sides also agreed to negotiate over the next 90 days to resolve issues of concern raised by the United States including intellectual property protection, non-tariff trade barriers and cyber theft.

Mr Trump had earlier said the pair shared a "very special" relationship.

What pushed the two sides to the table?

China has placed a 10 percent tariff on U.S. -LNG imports with the threat of increasing that figure in the future, resulting in China having to find alternate sources of the super-cooled fuel on the spot market. We think China is likely to agree to speed up market opening in a number of industries including services, telecommunication equipment, automobiles, agriculture and biotech.

Another significant take-away from the preliminary agreement could be its impact on energy markets, both US oil import to China and perhaps even more importantly from a development perspective liquefied natural gas (LNG) imports.

China has already said that it would enhance IP court system and introduce punitive damage on IP violations. The Trump Administration has also made it a priority to crack down on the flow of fentanyl-like substances from China, which may enter the country either directly through the mail, or indirectly via cartels.

"It's 90 days. It's nothing and it doesn't really make any difference".

President Trump and Chinese President Xi Jinping approved a deal on Saturday at the Group of 20 meeting in Argentina.

If China and the USA fail to reach agreement in 90 days, the US will raise the 10% tariffs to 25% and may move forward on additional tariffs.

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