US Urges China to Buy More Chips, Cut Auto Tariffs to Avert Trade War

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US Urges China to Buy More Chips, Cut Auto Tariffs to Avert Trade War

According to The Wall Street Journal, President Donald Trump’s administration is secretly negotiating with China ways to improve U.S. companies’ access to Chinese markets, easing fears of a full-fledged trade war between the world’s two largest economies and providing hope to the many exporters who generate significant revenue from the People’s Republic.

According to the Journal, conversations between Lie Hu, who was recently assigned to control China’s economy, US Treasury Secretary Steven Mnuchin, and US Trade Representative Robert Lighthizer include a wide range of sectors, including financial services and manufacturing. Mnuchin and Lighthizer, according to the sources, addressed a letter to Liu late last week with a list of proposals aimed at cutting China’s bilateral trade imbalance by $100 billion.

In the letter, they requested China to lower tariffs on American vehicles, purchase more American semiconductors, give more regulatory openness, expand access to its banking sector, and abolish the need that American corporations form joint ventures with Chinese enterprises to enter the Chinese market. Mnuchin is now said to be mulling a travel to Beijing to continue these talks. According to the Financial Times, China has agreed to buy more chips from the United States while redirecting purchases away from South Korea and Taiwan in order to reduce its excess.

Shares of semiconductor and car firms in the United States gained in pre-market trade on Monday, along with the main indexes. Intel Corp. (INTC) gained 2.71 percent, Nvidia Corp. (NVDA) gained 2.31 percent, and Qualcomm Inc. (QCOM) gained 1.94 percent, while the tech-heavy Nasdaq index gained 1.64 percent. Ford Motor Company (F) gained 1.61 percent, while Fiat Chrysler Automobiles N.V. (FCAU) gained 2.57 percent.

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Following up on this letter, Trump’s administration personally called Liu on Saturday to congratulate him on his appointment to vice premier. A Treasury spokesperson stated, “Secretary Mnuchin contacted Liu He to congratulate him on the formal announcement of his new post.” “They also reviewed our two nations’ trade imbalance and vowed to maintain the conversation to find a mutually acceptable approach to minimize it.”

According to the official Xinhua News Agency, Liu warned Mnuchin that Washington’s current trade assault against China will harm both nations and the globe, and expressed his hope that the two countries would work together to “keep the general stability of their economic and trade ties.”

Stock markets will be relieved to hear that both parties are working behind the scenes to reach an agreement. Shares of US exporters fell last week as Washington threatened to impose tariffs on up to $60 billion in Chinese products in order to fix the country’s $375 billion trade gap with the world’s second-largest economy.

In reaction to this threat, as well as Trump’s prior commitment to slap steep duties on steel and aluminum imports, China announced intentions to impose reciprocal tariffs on $3 billion in US imports, including a 25% duty on US pig imports and a 15% levy on American steel pipes, fruit, and wine. Signs of a looming trade war drove shares of America’s largest exporters tumbling, prompting investors to abandon stocks in favor of Treasury bonds. (See also: Fidelity Investments: Earnings Growth May Limit Tariff Impact.)

Boeing Co. (BA), the largest US exporter, was one of the most hit, since China had previously threatened to switch to other manufacturers, such as Airbus, if Trump imposed tariffs. Caterpillar Inc. (CAT), 3M Co. (MMM), Archer-Daniels-Midland Co. (ADM), Deere & Co. (DE), Nike Inc. (NKE), Apple Inc. (AAPL), Yum! Brands Inc. (YUM), and Starbucks Corp. all earn a major amount of their revenues from China (SBUX).(See also: 6 Stocks to Avoid in a Trade War.)

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