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China to cut US tariffs as coronavirus risks deepen

Markets rally after Beijing unveils plan to halve extra levies on 1,717 US products

A fourth day of gains sent shares on Wall Street to fresh peaks after China sought to bolster its coronavirus-hit economy by cutting tariffs on a range of US products.

Despite evidence of the growing global impact of the virus, hopes that the medical emergency might lead to a trade truce between the world’s two biggest economies sent the Dow Jones industrial average and the S&P 500 to record highs in early trading on Thursday.

London’s FTSE 100 index also posted modest gains – closing 22 points higher at 7,505 – as investors gambled that the boost from a lessening of protectionism would outweigh the drag on output caused by travel bans and disrupted supply chains.

Fiat became the latest company to feel the impact of the coronavirus when it warned that it would have to shut one of its European plants within weeks due to a shortage of components from China.

Other multinationals including Hyundai, Tesla, Ford, Peugeot Citroen, Nissan, Airbus, Adidas and Foxconn have announced they are being affected by the disruption. Honda said it was considering keeping operations suspended for longer than planned at its three plants in Wuhan.

But financial markets took their cue from Steve Mnuchin, the US Treasury secretary, who downplayed the idea that the measures taken by Beijing to stop the spread of the virus would have a marked impact on supply chains.

The market rally followed the latest attempts by the Chinese authorities to boost the economy. After pumping money into the banking system and announcing tax and spending measures to help companies and households, Beijing said it would halve additional tariffs on 1,717 US goods.

Simon Harvey, an analyst at Monex Europe in London, said: “We’re seeing credible responses from monetary authorities in China and it looks like it’s soothing market fears of a more entrenched slowdown in the Chinese economy.”

The tariff cuts followed the signing of a phase 1 trade deal late last year that halted the trade war between the world’s two largest economies.

While the announcement reciprocates the US commitment under the deal, it is also seen by analysts as a move to increase confidence amid the coronavirus outbreak that has disrupted businesses and dented investor sentiment.

However, Beijing could invoke a disaster-related clause in the trade deal, which might allow it to avoid repercussions, even if it cannot fully meet the targeted purchases of US goods and services for 2020.

China’s finance ministry said from 14 February additional tariffs levied on some goods would be cut to 5% from 10%, and others lowered to 2.5% from 5%.

The ministry did not state the value of the goods affected but the products benefiting are part of the $75bn worth of goods that China said last year it would impose 5% to 10% tariffs on, which came into effect on 1 September.

In a separate statement, the finance ministry said the tariff cuts correspond with those announced by the US on Chinese goods, also scheduled for 14 February.

Further adjustments would depend on the economic and trade situation, the ministry said.

The reductions will cut tariffs on soya beans from 30% to 27.5%. Duties on crude oil will fall to 2.5% from the 5% rate imposed in September. The remaining tariffs were scheduled to kick in on 15 December but were suspended due to the interim trade deal.

“Any move to de-escalate is always good. Especially when the market is overwhelmed by the news about virus, good news about tariffs is refreshing,” said Tommy Xie, head of Greater China research at OCBC Bank in Singapore.

“The announcement shows China’s commitment to implement the phase 1 trade deal despite the disruptions from the recent virus outbreak.”

While the proposed tariff cuts point to clear progress in US-China trade ties, the virus outbreak has cast doubt over just how soon the phase 1 deal could help China’s slowing economy.

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