Tariffs have been bypassed: how will the turnover of China and the United States change after the reduction of duties

The temporary reduction in tariffs, which the United States and China agreed on during negotiations on May 10-11, does not guarantee an end to the trade war between the countries — most likely, restrictions will resume after the allotted 90 days, but they will not be as severe, analysts interviewed by Izvestia believe. For the next three months, China has reduced duties from the previously announced 125% to 10%, and the United States from 145% to 30%. Global trade indices, as well as oil, reacted positively to the trade truce. However, further reductions in fees should be expected only in certain industries — for high-tech and agricultural products. What are the pros and cons for Russia of relaxing the requirements — in the material of Izvestia.

China and the United States have agreed to reduce duties

On May 10-11, the United States and China held talks on trade and economic issues. They were aimed at resolving the standoff that began with the coming of Donald Trump to power at the beginning of the year and escalated in April.

The American leader announced the introduction of increased tariffs against a number of countries, including China, early last month. If a 90-day pause in the application of measures was almost immediately extended to other states, then against China, on the contrary, restrictions were tightened several times in response to mirror measures from China. By May, fees against Beijing had increased to 145%, and against Washington to 125%. In these circumstances, the countries decided to engage in dialogue.

As a result, their representatives reached an agreement on mutual reduction of duties for 90 days. Washington will reduce tariffs on Chinese goods from 145% to 30%, and Beijing will reduce tariffs on American products from 125% to 10%. The changes will take effect on May 14, the White House said in a statement on the 12th.

Global markets reacted positively to this decision on Monday. The Dow Jones Industrial Average rose by 2.4%, the S&P 500 by 3%, and the Nasdaq 100 by 3.9%. At the same time, shares of Chinese companies on the Hong Kong Stock Exchange rose by 3%. In addition, after the negotiations, Brent crude oil rose in price by almost 3%, rising above $ 65 per barrel.

Will the US and China lift tariffs after the trade truce

Last year, the trade turnover between China and the United States amounted to $688 billion, an increase of 4%. Given that the increased duties, which effectively zeroed out trade between the countries, were in effect for almost a month, mutual turnover could decrease by $40-50 billion, experts estimated. For comparison, the total trade between Russia and the United States last year amounted to about $3 billion.

The United States has decided to reduce tariffs, as this has already begun to lead to a slowdown in American GDP, said Evgeny Smirnov, Head of the Department of World Economy and International Economic Relations at the State University of Management. Although tariffs on Chinese imports have been in effect to one degree or another for the past few years, the situation has not been so critical: goods have been passing through third countries, such as Vietnam and Mexico. However, now increased fees have been imposed against them, and America has been cut off from inexpensive Asian products.

— Now, against the background of a temporary reduction in duties, importers will have an incentive to restore or expand supply volumes, especially in sectors where the tariff burden has decreased from triple-digit levels. At the same time, much will depend on the stability of the agreements, as businesses need to be confident that high tariffs will not return," said Vladimir Chernov, analyst at Freedom Finance Global.

He added: if the consultation mechanism announced proves effective, we can expect further reductions in duties in certain industries, especially high-tech and agricultural ones.

Nevertheless, the risk of a full-scale trade conflict remains, especially given the unstable domestic policy of the United States, Vladimir Chernov believes. According to him, the suspension of tariffs for 90 days and the intention of the countries to conclude a trade deal indicate that Washington and Beijing are unlikely to continue to tighten restrictions, but also does not guarantee that they will be completely eliminated.

The United States is unlikely to agree to a significant additional reduction in duties, Kirill Kononov, an analyst at BCS World of Investments, believes. One of the central points of Donald Trump's policy is the desire to reduce the trade deficit, that is, to partially reindustrialize the United States. Kirill Kononov is convinced that it is more convenient to do this in the context of trade protectionism, in particular, the maintenance of significant duties.

— In 90 days, both sides will have to try to find a compromise, first of all, on how to reduce the chronic trade deficit of the United States in trade with China. And no one knows yet whether it will be possible to agree on mutually acceptable terms, and what the duty levels will be after these 90 days," says Olga Belenkaya, head of the Macroeconomic Analysis Department at Finam.

China, in turn, has already demonstrated that it is ready to take tough retaliatory measures. If Washington does not cancel its duties, Beijing is unlikely to reset them either.

How the trade war between China and America will affect the Russian Federation

The improvement of relations between China and the United States will have a dual impact on the Russian Federation. On the one hand, the slowdown in China's economic growth and exports may not be as significant as previously expected, which will provide some support to oil prices and the export potential of our country, independent expert Andrey Barkhota believes.

On the other hand, although Brent prices recovered some of their losses in May, energy prices have fallen by a quarter since the beginning of the year. If the cost of oil remains low, the Russian treasury's deficit may increase to 3.8 trillion, which is exactly the figure the Ministry of Finance is putting into the updated financial plan (before that, the shortfall was expected to be 1.2 trillion rubles).

In addition, Andrei Barkhota continued, greater progress on the Chinese issue than on the Russian-Ukrainian settlement may contribute to a change in the priorities of the American administration's policy. This, in turn, will seriously slow down the process of lifting sanctions against the Russian Federation.

Also, with lower tariffs, China may begin to import more actively from the United States those goods that could replace Russian products, such as grain or energy, which will create competitive pressure, said Vladimir Chernov of Freedom Finance Global.

In general, the stabilization of relations between the United States and China will have a positive impact on international trade and make the situation in the world more predictable, says Anastasia Priklyova, Associate Professor of the Department of International Business at Plekhanov Russian University of Economics. Previously, a number of experts assumed that inexpensive Chinese goods would flood into the Russian market, which they would not be able to supply to the United States. However, now we should expect a decrease in such benefits.