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Jon LeSage

Jon LeSage

Jon LeSage is a California-based journalist covering clean vehicles, alternative energy, and economic and regulatory trends shaping the automotive, transportation, and mobility sectors.

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Is The Trade War Finally Coming To An End?

The U.S. and China may be ready to stabilize trade relations, with a U.S. government delegation traveling to Beijing during the week of Jan. 7 to hold trade talks with Chinese officials. 

Two people familiar with the matter told Bloomberg that Deputy U.S. Trade Representative Jeffrey Gerrish will lead the Trump administration’s team, and the U.S. team will also include Treasury Under Secretary for International Affairs David Malpass.

The U.S. didn’t respond to requests for comments, but China did confirm a meeting has been scheduled. Chinese Ministry of Commerce spokesman Gao Feng confirmed that talks will take place next month, although he didn’t provide a date for the meeting.

The stakes are high for U.S. and China trade relations to stabilize. The Trump administration launching the trade war — which added more than $200 billion worth of imports from China by the third quarter of 2018 — is considered a key factor in destabilizing oil prices this year. It’s also hurting China’s weakening auto sales, which is seeing its first decline in two decades.

China’s import tax on U.S. liquefied natural gas also caused market upheaval in China’s growing LNG market. It’s considered to have thrown a wrench into the market, giving sellers in China an opportunity to hike prices.

The two countries have held face-to-face discussions to reconcile the trade war. President Donald Trump met with China’s Xi Jinping and agreed on a 90-day truce in Argentina. Treasury Secretary Steven Mnuchin said last week that U.S. and Chinese representatives have held phone meetings since then.

Tesla’s CEO Elon Musk and other automotive executives were pleased to see China reduce tariffs to 15 percent from 40 percent after that meeting. Tesla was able to lower prices for its Model S, Model X, and Model 3, which are scheduled to be delivered to customers early next year. BMW AG and Daimler AG were able to cut prices on their U.S.-made luxury vehicles, bringing prices down to the level there were at before the extra duty was added last July.

Related: $50 Oil Won’t Kill U.S. Shale

Tesla believes the China market to be integral in its strategy of becoming a thriving global automaker — and getting through a rough year coming from the high cost of mass producing the Model 3, and from Musk’s comments about possibly taking the company private. The company this week registered a financial leasing company in China, according to a local business registration filing.

The electric carmaker wants to speed up its presence in the world’s largest electric vehicle market and sees China vital to competing with BMW and Daimler. Tesla has opened a wholly-owned financial leasing unit in Shanghai’s free trade zone with registered capital of $30 million, according to China’s National Enterprise Information Publicity System.

Chinese officials and auto executives have been troubled by new vehicle sales dropping in the country. The trade war has been part of the decline, along with a weakening economy in China, keeping potential buyers away from auto showrooms. It’s the first annual sales decline in at least two decades, and auto executives — both Chinese and from global automakers in joint venture partnerships with Chinese makers — want to see the market come back with vehicles sales returning to what they’d been before.

Related: Chinese Refiners Aren’t Buying U.S. Crude

Trade tensions are starting to cool. China this week announced a third round of tariff cuts, which will lower import taxes on more than 700 goods from Jan. 1. It’s part of its efforts to open up the economy and lower prices for consumers to fuel market demand.

China wants to see Trump back off his aggressive stance on China imports, and implement U.S. tariff reductions. The costs have been high for the U.S. in taking this aggressive stance.

The Center for Automotive Research earlier this year released a report warning that auto sales could plunge up to two million vehicles a year over the huge tariff increase launched by Trump. That could mean a loss of about 715,000 American jobs and a $62 billion hit on U.S. GDP.


In September, Ford CEO James Hackett said at a Bloomberg conference in New York that steel and aluminum tariffs imposed by the Trump administration had cost the company about $1 billion. On Nov. 27, Trump publicly chastised GM CEO Mary Barra over her decision to close four plants in the US because of sagging demand for sedans (that includes ending production of the plug-in hybrid Chevrolet Volt).

That came from Trump’s emphasis on keeping U.S. manufacturing alive and well, and keeping Americans working in the plants. The reality is that GM and other automakers have been investing heavily in global production and sales while staying as profitable as possible. The trade war with China hurts those strategies as China remains the largest auto market by far in gasoline-powered and electric vehicles.

By Jon LeSage for Oilprice.com

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  • Mamdouh G Salameh on December 29 2018 said:
    It could be coming to an end since it has now dawned on President Trump that he can’t win a trade war with China. China is ready to work for an agreement that is equally acceptable to both countries but will never put its name to any agreement that gives the United States an advantage to claim victory.

    President Trump did not really anticipate China’s response when he imposed tariffs on its exports to the United States. He thought that China will bend the knee to him. This not only didn’t happen but China retaliated blow by blow to his imposition of tariffs. Moreover, it completely stopped buying US crude oil and curtailed very significantly purchases of US LNG.

    Despite President Trump’s tough talk, his position vis-à-vis China has been weakened in recent time. The trade war is already starting to take a toll on the US economy. American farmers have been hit hard by retaliatory tariffs from China, which have tanked prices for corn and soybeans. More recently, the stock market has seen a spike in volatility, and all of the gains US stocks have seen in 2018 have been wiped out in the last few weeks. Perhaps more painful was the recent announcement from General Motors that the company was closing down five factories and laying off 14,000 people. Automakers warned that steel and aluminium tariffs would cost the industry billions of dollars. Moreover, the Centre for Automotive Research earlier this year warned that US auto sales could plunge by up to two million vehicles a year over the huge tariff increase launched by Trump. That could mean a loss of about 715,000 American jobs and a $62 billion hit on US GDP.

    The first crack in the US armour appeared when the US Treasury Secretary Steven Mnuchin admitted that China has not been manipulating its currency to benefit from trade with the United States. This is one of two accusations President Trump used when he imposed tariffs on Chinese exports. The other is the huge trade surplus China enjoys with the US.

    When President Trump first imposed tariffs on China, I said then that this could be the first shots in the petro-yuan/petrodollar war of attrition. If a trade war between China and the United States erupts, China will not run from a fight with the United States and will retaliate by imposing its own sanctions on US exports.

    Were China to be prevented from exporting $800 bn worth of Chinese goods to the American market, it could easily sell them somewhere else since its economy is much bigger and more integrated with the global trade system than the United States’.

    The United States will pay a very heavy price in trying to replace the Chinese exports with more expensive imports from other countries. This will add more costs to American consumers, exacerbate US budget deficit and inflation and add 2.35% to America’s $21 trillion outstanding debts. In other words, the US will be the loser in a continuation of a trade war with China.

    There is no doubt that the escalating trade war between the US and China has created uncertainty in the global economy impacting on the growth of the global demand for oil. However, it hasn’t dampened in any way China’s thirst for oil with Chinese oil imports already rising above 10 million barrels a day (mbd) this year and projected to hit 11 mbd early next year.

    The great rivalry between the United States and China will shape the 21st century. It is a truth universally acknowledged that a great power will never voluntarily surrender pride of place to a challenger. The United States is the pre-eminent great power. China is now its challenger.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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