Stocks rise after Chinese President Xi Jinping vows to lower barriers

Matthias Mueller has helped Volkswagen weather the emissions scandal storm

Matthias Mueller has helped Volkswagen weather the emissions scandal storm

"There was nothing new in that speech". Hawks like U.S. Trade Representative Robert Lighthizer will likely see the package as a risible low-ball offer. "But I do think the rhetoric, if it goes on for long enough at this level, is having somewhat a chilling effect".

"China's door of opening up will not be closed and will only open wider", said Xi at the Boao Forum for Asia on the southern island of Hainan. The Chinese responded with their own threat of $50 billion in tariffs on USA imports. In addition to this, the Chinese President also said that foreign ownership in the auto industry would also be eased "as soon as possible". For example, Xi suggested China would shorten the so-called "negative list" of sectors off-limits to foreign investment, a oft-repeated commitment that has become a symbol of Chinese legerdemain within the foreign business community. He made no mention of US actions, but the contrast was clear. The S&P 500 closed 1.67 percent higher Tuesday, and shares of Ford and General Motors climbed almost 1.8 percent and almost 3.3 percent, respectively.

Many serious commentators look at America's large trade deficit with China and argue that something has to be done. For its part, Beijing quickly revealed plans to apply tariffs on 128 U.S. products (accounting for roughly $3bn in imports) and stated its intention not to back down. The statement comes in the backdrop of U.S. President Trump's stand of punishing China for "stealing American intellectual property rights" as well as correcting the imbalance in bilateral trade of goods between the U.S. and China.

As seen in the chart below from Westpac Bank, China's trade surplus with the United States has ballooned over the past decade as exports to the U.S. grew substantially faster than imports heading in the other direction.

"Xi proposed actions which were previously promised and none address the reciprocity issues in U.S".

Evan Medeiros, former US National Security Council director for Asia, noted it was "not a new commitment and will not dramatically change the fortunes of US auto companies".

"The U.S., in the next round of tariffs, could start targeting goods that the Chinese do mostly produce themselves", he said. More vaguely, he pledged further protections of foreign intellectual property and said China would expand imports.


Sharing the same opinion, Steven Schwartz, senior director of sovereign ratings for Asia at Fitch Ratings, said South Korea, Taiwan, Vietnam and Malaysia, all of which export goods - such as machine parts and components for communications equipment - used in the production of items that China then sells to the US, are vulnerable, according to the South China Morning Post.

Chinese investment in the U.S. plunged previous year as tensions between the two countries mounted. "Does that sound like free or fair trade", Trump tweeted.

Chinese markets also rallied, with the Shanghai Composite rising 1.7 percent and the tech-heavy Shenzhen up 1 percent.

"China seems to have gotten a lot of mileage from Xi's rote statements and minor concessions that Trump has turned around and spun as evidence of his deal-making prowess", said Eswar Prasad, a senior professor on trade policy at Cornell University in the USA and senior fellow at the Brookings Institution. We believe China is willing to negotiate and make its market more open. The story so far: after Trump announced a 25 per cent tariff on steel, which account for around $1 billion (Rs 6.4 thousand crore) of China's exports, Beijing hit back with tariffs on 120 American products worth around $3 billion (Rs 19.4 thousand crore), from wine to pork.

Xi's proposals could help the USA and China resolve their differences and avert a trade dispute that slows down global commerce.

If the two sides can't agree on a solution, the next step could be for Beijing to request a ruling from a panel of trade experts. He said China is committed to opening up its economy more to foreign businesses and products.

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