US to cut tariffs on batch of Chinese imports on 14 February

Author: Al Greenwood

2020/01/17

HOUSTON (ICIS)--The US will lower tariffs on a batch of Chinese imports on 14 February, part of the phase-one trade agreement that the two countries signed earlier in the week.

Under the agreement, the US will lower tariffs to 7.5% from 15% on $120bn worth of imports from China, according to the US Trade Representative (USTR).

The $120bn batch of tariffs has a complicated history. They initially were part of a larger batch that the US announced in May 2019. The US then divided the tariffs into two batches.

One batch was withdrawn. The other batch is subject to the tariff reduction.

Most of these tariffs cover finished goods and include very few chemicals and plastics. Most of the tariffs on these products remain.

During a signing ceremony for the phase-one trade deal, US President Donald Trump said the two countries will remove the remaining tariffs if they can reach a subsequent trade deal.

Trump did not say when the two countries could sign such a phase-two deal.

Other parts of the trade deal include commitments by China to address forced technology transfers, to protect US intellectual property and to fight pirated and counterfeit goods.

China also agreed to purchase an additional $200bn worth of US goods in 2020-2021. The commitment uses 2017 as a baseline. Many organic and inorganic chemicals can go towards meeting that commitment. However, it excludes plastics and rubber.

The following table breaks down China's import commitment. Figures are in billions of dollars.

2020 2021 TOTAL
Manufactured Goods 32.9 44.8 77.7
Agriculture 12.5 19.5 32.0
Energy 18.5 33.9 52.4
Services 12.8 25.1 37.9
TOTAL 76.7 123.3 200.0

Source: Trade agreement

Manufactured goods cover several subgroups, as shown in the following table.

Industrial machinery
Electrical equipment and machinery
Pharmaceutical products
Aircraft (orders and deliveries)
Vehicles
Optical and medical instruments
Iron and steel
Other manufactured goods

Source: Trade agreement

Chemicals fall under other manufactured goods. Specifically, every organic and inorganic chemical listed under Chapter 28 and Chapter 29 of the harmonised schedule (HS) will go towards meeting China's broader commitment to import $77.7bn worth of manufactured goods.

China has imposed tariffs on many of those chemicals as well as other manufactured goods. Since China has not rolled back any of its tariffs, it is unclear how it will meet its import commitment for manufactured goods.

There could be some US products that are not under tariff. China could focus on these products to meet its commitment.

China could adopt temporary exemptions for high-volume goods that will go towards the commitment. It could also remove the tariffs.

The US Trade Representative (USTR) acknowledged the conflict between China's commitments and its tariffs, but it did not specify how it could be resolved.

"For China to implement its commitments to substantially increase its imports of US goods, it will need to ensure that its retaliatory tariffs do not impact its purchase commitments," the USTR said in a statement to ICIS.

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