Delay in new China tariffs cheers Wall Street

In what one expert called a "course adjustment" by the Trump administration, the US trade representative's office announced Tuesday that a planned 10 percent tariff on a range of Chinese imports would be delayed, sending the stock market soaring.

"The announcement is Trump's olive branch," Gary Hufbauer, a senior fellow at the Washington-based Peterson Institute for International Economics told China Daily. "He sees how much damage the trade war is doing to the US economy and the stock market and wants a course adjustment without looking like a course reversal. If China reciprocates, so much the better."

The Office of the US Trade Representative (USTR) released a 21-page list of Chinese imports that won't face new tariffs until Dec 15 at the earliest, including cellphones, laptop computers, clothes, toys, baby products such as strollers, monitors, highchairs and diapers, microwave ovens, musical instruments, sleeping bags and fishing reels.

A 10 percent tariff on products such as flat-screen TVs, contact lenses, lithium ion batteries and snowblowers still is scheduled to go into effect Sept 1.

And some other imports were removed outright from the list.

"Certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent," the USTR said. It did not specify which items would be removed.

Based on a Reuters analysis, the tariff delay until Dec 15 would cover around half of the $300 billion list.

Those imports totaled about $156 billion last year, according to US Census Bureau data.

"We're doing this for Christmas season, just in case some of the tariffs would have an impact on US customers," US President Donald Trump told reporters in New Jersey. "Just in case they might have an impact on people, what we've done is we've delayed it so that they won't be relevant to the Christmas shopping season."

The USTR announced the decision shortly after China's Ministry of Commerce said Vice-Premier Liu He spoke by phone with American trade officials.

"China lodged solemn representations," the Ministry of Commerce said, about the Sept 1 tariffs.

Liu agreed with Lighthizer and Treasury Secretary Steven Mnuchin to speak again by phone within the next two weeks, the ministry said.

Trump has said the two sides still may meet early in September as scheduled.

The Consumer Technology Association applauded the delay on some items, but added: "Next month, we'll begin to pay more for some of our favorite tech devices – including TVs, smart speakers and desktop computers. The administration should permanently remove these harmful tariffs and find another way to hold China accountable for its unfair trading practices."

Shares of companies with strong business ties to China rallied on the news.

Apple, heavily dependent on China for assembly of its iPhone and laptops, closed at $208.97 a share, up $8.49, or 4.2 percent. The latest round of tariffs would have hurt Apple's launch of this year's new iPhone line, which usually happens in late September.

Apple's stock had fallen about 6 percent since Trump announced the tariffs Aug 1, or double the decline of the S&P 500 in that period.

Last year, the US excluded smartwatches and wireless earbuds from tariffs, making Apple's current exemption the second it has received.

Shares of Archer Daniels Midland, which has blamed the trade dispute for disrupting sales to China and distorting farm prices, rose just under 1 percent.

Green Plains, which counts heavily on Chinese demand for its fuel additive, rose 4.7 percent.

Mattel, a major toy company reliant on Chinese imports, rose 4.6 percent, and competitor Hasbro rose 2.8 percent.

The USTR said the action was the result of its "public comment and hearing process".

Hundreds of companies testified in June against the new tariffs, and many warned that additional tariffs would raise prices at home and cost a loss of American jobs.

David French, senior vice-president of the Washington-based National Retail Federation, said unresolved trade issues continue to roil the economy.

"We are pleased the administration will delay tariffs on certain consumer products," he said in a statement. "Clearly, the administration understands the importance of avoiding higher taxes on American families during the holiday season. Still, continued uncertainty for US businesses and consumers is a drag on the economy."

Rich Helfenbein, CEO of American Apparel & Footwear Association, a trade group based in Washington, said Tuesday's action wasn't enough to calm retailers and consumers.

"While the Trump administration is delaying tariffs on 'certain items of footwear and clothing' for 105 days and removing other items from the list entirely, it is still persisting with a destructive plan to impose tariffs on consumer goods used by every American and critical inputs used by US manufacturers," he said in a statement.

"Make no mistake, these tariffs, including the ones imposed in earlier tranches, are paid by US companies," Helfenbein said. "They create costs and uncertainty, forcing companies to delay or scuttle hiring and investment and ultimately hit the US consumer."

Neil Bradley, chief policy officer at the US Chamber of Commerce, called Trump's decision "welcome news''.

"Now, it's more important than ever that the two sides return to the negotiating table and recommit to achieving progress towards a comprehensive, enforceable agreement," he said in a statement.

An analyst at Bank of America remained cautious.

"Recession risks are elevated," Michelle Meyer, head of US economics at Bank of America, told The Washington Post. "Uncertainty remains very high."

The Dow Jones Industrial Average closed at 26,280, up 373 points, or 1.4 percent, on Tuesday. 

But on Wednesday, US stocks closed remarkably lower, as persisting fears over an imminent recession dealt a blow to the already-dampened investor sentiment.

The Dow Jones Industrial Average sank 800 points, or 3 percent, the worst day of 2019 amid recession fears.The S&P 500 decreased 2.93 percent to 2,840.60, and the Nasdaq fell 3.02 percent to 7,773.94.

The tariffs that Trump had proposed on Aug 1 would have been stacked on top of a 25 percent levy on about $250 billion in Chinese goods and would result in a duty on nearly everything the US imported from China.

Reuters contributed to this story.