China is cutting tariffs on U.S. goods, and markets are celebrating: The Nasdaq rose 0.7% to a fresh high on Thursday, led by trade-reliant stocks including Apple and Nvidia. But investors are ignoring some inconvenient truths.
The move by China’s commerce ministry, announced Thursday, is welcome because it shows that Beijing is following through on pledges it made to lower tariffs following the phase-one trade agreement with the U.S. Tariffs of 5% and 10% levied on some goods in late 2019 will be halved for $75 billion of U.S. imports, including some semiconductor-related materials, soybeans and crude oil.
However, on the same day the tariff cuts were announced, China’s state-controlled Global Times reported that Beijing may be considering invoking a disaster clause in the phase-one agreement due to the coronavirus outbreak, which has now killed more than 500 people and infected over 30,000. The agreement provides for consultations in case “a natural disaster or other unforeseeable event outside the control of the Parties delays a Party from timely complying with its obligations.”
Ultimately, China’s relatively small tariffs were far less important in cutting American imports than the decision of big state-owned companies to more or less boycott key U.S. goods including soybeans and oil during the trade war. And given the scale of the disaster currently unfolding, China’s need for certain goods like oil very well could be lower than expected this year.
China on Friday also unexpectedly delayed the release of its January trade data. That is a worrisome signal that the data might be very bad indeed, although an explanation posted on the custom administration’s website simply said that January and February data would in the future be published together, as is already the case for many other official data series. Statistics for the months tend to be skewed by the Lunar New Year holiday, which could fall in either month.
The Trump administration loves playing hardball. But playing hardball with a nation reeling from a horrific human disaster—and risking the trade deal falling apart in an election year—would be a risky move if Beijing does request some leeway on purchase commitments in 2020. China will need a lot more medical goods than expected this year too, which might help offset lower purchases of some other products.
Given the likely hit to China’s economy in the first half of 2020, growth in overall imports will almost certainly slow sharply, at least for a while. Interpreting a small tariff cut as the all-clear for U.S. exports to the country this year is at best premature.
Write to Nathaniel Taplin at firstname.lastname@example.org
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