With Latest Tariff Developments, More Confusion (Mixed With Optimism)

There have been two more recent moves in the ongoing game of tariff chess between the U.S. and China. President Trump announced on Monday that the U.S. would put a hold on $150 billion in Chinese imports after China promised to increase its imports of agriculture and energy products, per Business Insider.

Under our potential deal with China, they will purchase from our Great American Farmers practically as much as our Farmers can produce.

— Donald J. Trump (@realDonaldTrump) May 21, 2018

China, on the other hand, cut tariffs on automotive vehicles from the U.S. from 25 percent to 15 percent, and the tariffs on imported automotive parts will drop to 6 percent.

According to NPR, the U.S. shipped almost $10 billion in automotive vehicles to China last year, and $3.5 billion in parts.

The ideal outcome here would be for U.S. manufacturers who moved production overseas—in this case automotive manufacturers—in order to avoid high tariffs, to move more production back to the U.S.

However, the tariff decrease isn't enough for companies like Ford or General Motors to leave China completely.

The New York Times reports:

Lower tariffs on imported components will make it more attractive for global manufacturers to do much of their final assembly in China, since they will not have to pay as much to import high-tech parts made elsewhere. Cementing China’s role as the leading country for car assembly will help Beijing move the economy toward more sophisticated industries that can provide well-paid jobs for an increasingly well-educated population. Through a process Chinese officials call supply-side reforms, they hope to close older, smokestack industries that offer little more than low wages and high pollution.

Though automotive manufacturing is the primary point in these tariff developments, this all relates back to the story of Nike and Adidas leaving China, while some big-name luxury brands choose to stay. If China's manufacturing identity becomes more upscale while maintaining its efficiency, companies will either want to stay for that (while avoiding tariffs), or leave for countries with cheaper costs of production, like Vietnam.

What started as tough talk that seemed to be pointing to a trans-Pacific trade war with China has taken an interesting turn, as the U.S. has slightly softened its stance, and China has given a few inches in turn.

In an early-morning tweet today, President Trump alluded to a change of course, albeit vaguely, in the country's China strategy.

Our Trade Deal with China is moving along nicely, but in the end we will probably have to use a different structure in that this will be too hard to get done and to verify results after completion.

— Donald J. Trump (@realDonaldTrump) May 23, 2018

So, basically, we're now at a "wait and see what happens" point in the tariff talk.