China said it would halve tariffs on $75 billion of U.S. goods, pressing forward on the first phase of its trade pact with Washington even as the coronavirus crisis remains a significant hurdle to its economic engine.
The phase one agreement signed last month quelled the protracted trade conflict that tied up the world’s two most powerful economies, imperiled global growth and caused chaos for multinational corporations. The terms required both nations to de-escalate tariffs, and compelled China to buy an additional $200 billion in American goods over the next two years.
The tax rate on some 916 items, including soybeans, pork and fish, was cut from 10% to 5% effective Feb. 14, China’s finance ministry said. The rate for 801 items, including auto parts, will be cut from 5% to 2.5%. The tariffs date to September and had been implemented in response to tariffs the U.S. had recently applied.
The widely expected move comes as China is paralyzed by the coronavirus. It has also brought China’s powerful manufacturing industry to a standstill, as travel restrictions freeze China’s workforce and major companies such as Boeing, Apple and Nike have been forced to close factories until at least mid-February. McDonald’s, Starbucks, KFC, Levi Strauss, H & M and Samsung have closed stores across China.
“The recent cut in Chinese tariffs is more about containing the economic damage to China from the coronavirus than it is about trade relations between the two countries,” Brad McMillan, chief investment officer for Commonwealth Financial Network, said Thursday.
China is the world’s leading oil consumer, and the country’s lockdown has sent shock waves through crude markets. Even if the virus is contained soon, economists are predicting China’s growth rate will fall to between 3% and 4% this quarter.
Experts are skeptical about China’s ability to deliver on the additional $200 billion in U.S. purchases it is supposed to make, and the likelihood seems slimmer given the outbreak. But the pact includes a disaster clause, which allows for some leniency in the event of a crisis like the coronavirus.
In an interview with Fox Business this week, White House National Economic Council director Larry Kudlow acknowledged that the outbreak could delay China’s purchases. But he said the effect on the U.S. economy would be minor.
U.S. Agriculture Secretary Sonny Perdue said Wednesday that the U.S. should be patient with China if it struggles to hit these targets amid the outbreak, Reuters reported.
This report includes material from the Associated Press.