Amid Trump's threats, Xi pledges to slash tariffs, open China's markets

By Jessica Meyers

April 10, 2018 6:37 AM PT

Reporting from BEIJING — A day after President Trump called aspects of the U.S.-China trade relationship “stupid,” his Chinese counterpart tried a different strategy. He responded on Tuesday with a promise to slash auto tariffs and further open the country’s markets to imports.

President Xi Jinping — in his first public comments since the two nations veered toward a trade war — presented China as a steady, globalizing force that seeks to partner with countries rather than manipulate them. He made no mention of U.S. actions, but the contrast was clear.

“Openness versus isolation and progress versus retrogression, humanity has a major choice to make,” Xi said at the Boao Forum for Asia, China’s version of Davos, held on the tropical southern island of Hainan. “The trend of peace and cooperation is moving forward and a Cold War mentality and zero-sum game are outdated.”

Xi pledged to reduce restrictions on imported cars by the end of the year, bolster intellectual property rights, and allow greater access to financial markets — all White House grievances. A day before Xi’s speech, Trump tweeted about the injustice of China’s 25% tariffs on foreign cars.

“We want the outcomes of our opening-up efforts to deliver benefits as soon as possible to all enterprises and people in China and around the world,” Xi said.

Chinese officials and state media, in the lead-up to Tuesday, breathlessly billed his speech as a major announcement about the country’s reforms. And yet few of his pledges signaled much change. China has previously agreed to strengthen intellectual property protections and make it easier for foreign companies to operate. Officials have gradually reduced taxes on auto imports and discussed chopping them further.

China said in November that it would ease restrictions on foreign ownership of financial institutions. It’s still not clear when that will happen.

But Xi’s vows, made in a cavernous room full of global investors and state dignitaries, carry greater weight. They may also help appease leaders frustrated by Trump’s erratic behavior on trade. Stocks rallied across Asia on Tuesday and European shares rose in morning trading.

“Many of those steps are not entirely new, and the U.S. side will likely want to see deeds, not just words,” said Ashley Qian Wan, China economist for Bloomberg Economics in Beijing. “Even so, with Xi’s speech positioning China as conciliatory, the chances of a damaging trade war appear a shade lower.”

The speech commemorated four decades since China embraced an economic transformation that opened it to the world. The country has vowed for years to free up its markets, but foreign companies still struggle for the same access as domestic competitors.

Xi’s calm remarks followed rising threats last week between the world’s two largest economies, which fueled fears of a trade war that would pulverize the global economy.

The latest salvo began April 3 when the Trump administration proposed tariffs on 1,300 Chinese-made products worth about $50 billion, including medical devices and auto parts. Officials accused China of forcing American companies to hand over trade secrets that would help it surpass the U.S. in cutting-edge innovation. Chinese officials responded dollar-for-dollar, preparing to taking aim at major U.S. exports like soybeans and aircraft.

Trump then said he’d instructed his staff to explore another $100 billion in tariffs. So Gao Feng, a spokesman for China’s Ministry of Commerce, gathered reporters Friday — on a national holiday at 8 p.m. — to warn the country “would immediately fight back with a major response” if Trump enacted the levies.

Analysts question whether Xi’s conciliatory speech really popped the tension.

“I suspect Trump is going to go Jerry Maguire and say, ‘Show me the money,’” said Christopher Balding, associate professor of business and economics at the HSBC Business School in Shenzhen. “Give me what the actual tariff rate into China is going to be. Don’t just tell me you’ve changed, show me.”

Trump’s aggressiveness may worry Chinese leaders, but his America First policy has offered them the chance to seize a more prominent spot on the world stage. Xi reinforced that last year when he spoke at Davos for the first time in a rousing defense of free trade and climate change.

With his Tuesday speech, “he maintains the defender-of-the-global-order posture adopted at Davos,” said Arthur Kroeber, managing director of Gavekal Dragonomics, a Beijing research firm.

Since Xi’s Davos debut, China has abolished term limits so he can stay in power indefinitely. He’s also embedded the Communist Party more deeply into society — including within businesses — and sought to promote China’s dominance in high-tech sectors such as artificial intelligence and robotics. The latter is a key tension in Washington.

Some still viewed Xi’s speech as a welcome de-escalation after last week’s antics.

“He has made a unilateral move without even going into negotiations” with the U.S., said Wang Huiyao, founder of the Center for China and Globalization, a public policy think tank in Beijing. “China is voluntarily showing a very good gesture of opening up.”

Even the hint of more access energized American companies hungry for a bite of the world’s biggest market.

“This is a very important action by China,” tweeted Tesla co-founder Elon Musk, who has reportedly struggled to open a factory in Shanghai. “Avoiding a trade war will benefit all countries.”

Meyers is a special correspondent.

Twitter: @jessicameyers

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