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China’s Attempts to Defuse Escalating Trade War with the United States

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Chinese President, Xi Jinping, is trying to defuse the escalation of a trade war with the United States. The premier came up with a promise to not only open its economy further but will also take steps to cut import tariffs. This included products such as cars and came on the heels of the American President, Donald Trump, pointing out the big difference in auto import tariffs. He was speaking at a Boao Forum for Asia in Hainan, a southern province. Incidentally, his speech was keenly expected for more than one reason.

Previously Announced Measures

According to cnbctv18.com, there was nothing new in the speech and most of the promises or pledges were announced previously. Though foreign business groups pointed out that their implementation was long overdue, Xi’s timing of reiteration assumed significance. The stock markets were reeling under pressures after the tit-for-tat tariffs imposition by the United States and China. Following the latest comments, stock futures in the American stock exchanges were trading higher.

One of the contentious issues between the United States and China is the absence of allowing wider market access for global investors. The Chinese president assured that he would initiate steps to widen the market access sharply. As if to address the concern raised by Trump, Xi indicated increasing the foreign ownership limit in the automobile, aircraft and shipbuilding sectors as quickly as possible. Aside from that, he would also push for opening up the financial sector.

The Chinese premier assured reduction of import tariffs on some other products too in the current year. Though he was not referring the United States, he was quoted as saying that “Cold War mentality” and isolationism would only “hit brick walls.” Since 2013, officials were only offering promises to ease limitations in respect of foreign joint ventures in the automobile industry. That would enable global firms to assume a majority stake.

Currently, only 50 percent stake is allowed in joint ventures. This apart, the existing provision did not allow fully owned factories to be established by foreign companies in China. Xi also focused on the insurance industry and was ready to speed up the process. Shanghai Securities news indicated that foreign firms would be allowed to have either controlling stake or full ownership in the future.

Trump Targets China’s Prosperity Proposal

Though there were criticisms of Trump’s proposals to slap tariffs on Chinese products, the American President has clearly targeted on the Asian country’s prosperity proposal. For about 40 years, China has allowed foreign firms to either handover technology or help domestic firms to develop their own. Only after doing this, China allowed its market access to foreign firms.

However, this kind of tactics was frustrating for most of the developed economies such as America, Europe, Japan and other partners. One of the main reasons everyone has avoided a confrontation with China was the size of the market, and the growth potentials is provided in a number of areas like aerospace, power generation, telecoms and other industry. Former European Union Chamber of Commerce President in China, Joerg Wuttke, believes that “We are entering a new phase of uncertainty.” He does not believe that Chinese overtures will work.

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