China’s government is considering suspending its 125% tariff on some US imports, people familiar with the matter said, as the economic costs of the tit-for-tat trade war weigh heavily on certain industries.

Authorities are considering removing the additional levies for medical equipment and some industrial chemicals like ethane, the people said, asking not to be identified discussing private deliberations. 

Officials are also discussing waiving the tariff for plane leases, the people said. Like many airlines, Chinese carriers don’t own all of their aircraft and pay leasing fees to third-party companies to use some jets — payments that would have become financially ruinous with the additional tariff.

Market reaction to the possibility of some goods being exempt was swift, with the offshore yuan flipping to a slight gain of 7.2857 per dollar, erasing Friday morning’s losses of as much as 0.1%.

The exemptions China’s mulling mirrors similar moves on the part of the US, which excluded electronics from its 145% tariff on Chinese imports earlier this month. The pullbacks reflect how deeply intertwined the world’s two biggest economies are, with some key industries grinding to a halt after the trade war escalated. 

While the US imports far more from China than the other way around, Beijing’s move spotlights the areas of its economy that remain reliant on US goods. China is the world’s largest plastics manufacturer, but some of its factories depend on ethane, which is mainly imported from the US. And its hospitals rely on advanced medical equipment like magnetic resonance imaging and ultrasound machines made by US firms like GE Healthcare Technologies Inc.  

China’s Ministry of Finance and General Administration of Customs did not respond to requests for comment.

The list of exemptions is still in flux and discussions may not progress. Companies in vulnerable sectors have been asked by authorities to submit the customs codes of US goods that they need to be exempt from the new tariff, other people familiar with the matter said. At least one Chinese airline has been notified that payments to aircraft leasing companies located in free trade zones will not be subject to the new levy, one person said. 

Traders have also been circulating purportedly tariff-exempt lists of customs codes that correlate to key chemicals and chip-making components. Bloomberg News could not independently verify the lists. 

Beijing is also preparing to waive additional tariffs on at least eight semiconductor-related products, Caijing reported on Friday, citing anonymous sources. Those categories don’t include memory chips for the time being, the outlet said, in a potential blow to Micron Technology Inc, the world’s No 3 memory chipmaker.

Investors are looking for signs that the two countries will engage to lower tariffs, but relations appear to still be at a standstill. On Thursday, Chinese officials publicly demanded the US revoke all unilateral tariffs before agreeing to trade talks. President Donald Trump has tried to get Chinese President Xi Jinping on the phone since he returned to office, but the Chinese leader has, so far, resisted, pushing instead for lower-level talks to work out a deal.

On the US front, Trump’s administration has exempted smartphones, computers and other electronics from its so-called reciprocal tariffs — a major reprieve for global technology manufacturers including Apple Inc and Nvidia Corp, though potentially a temporary one. The exclusions apply to smartphones, laptop computers, hard drives and computer processors and memory chips as well as flat-screen displays.

Source: The Edge Malaysia

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