China: Positive truce outcome in sight but could be baby step – ING

Iris Pang, Economist at ING, suggests that there are high chances of China cutting the US automobile import tariffs from 40% to 15%, which will put them in line with other countries' automobile imports.

Key Quotes

“Though this will not close the trade gap between the two economies by a sizeable amount, this will be the first positive outcome from the 1st of December dinner meeting between President Xi and President Trump.”

“Within the $51 billion of vehicle imports in 2017 into China, around $13.5 billion were imported from the US. This is equivalent to 4.86% of the bilateral trade gap based on China's trade data.”

“Overnight, the Wall Street Journal reported that Huawei's Meng got bail from the Canadian courts. This will certainly make the trade talks during the 90 days truce less complicated. But unless the US withdraws the Huawei case altogether, it is unlikely that either side will make big progress towards tariff reduction during this period.”

“USDCNY should trade between 6.86 and 6.88 with the positive news overnight. But as we expect actual cancellation of trade tariffs will be slow, we don't expect the yuan to appreciate too much before the end of 2018. Our year-end forecast of USDCNY at 7.0 is now at upside risk, we are looking at to revise next year's forecast, which is now at 7.3.”