China quietly exempts some U.S.-made semiconductors from tariffs

Cracks are appearing in the inscrutable wall.  Reuters reports that the tariff exemptions include pharmaceuticals and aircraft parts.  There may be other exempted US goods.

China's economy had been slowing for some time before Trump's tariffs were imposed.  Xi Jinping will have a difficult time building domestic Chinese consumption to replace the US market.  

The Chinese government won't jump into negotiations with the US if the Chinese Communist Party perceives that as weakness.  The Chinese government must carve out some sort of position of strength before there can be formal negotiations.  That's going to require a lot of backroom discussions that China will deny are official activities. 

S E E D E D   C O N T E N T

China has quietly exempted from tariffs some semiconductors made in the United States, in an attempt to protect its leading technology companies from a bitter trade showdown with President Donald Trump.

Levies on at least eight classifications of U.S.-made microchips have been dropped to zero, instead of the 125 percent retaliatory tariff rate Beijing has imposed on all other U.S. goods, Caijing, a Chinese financial media outlet, reported Friday.

The article was later deleted. But two importers who spoke to The Washington Post confirmed that certain semiconductors are exempted from tariffs. One company in Shenzhen listed the exemptions on social media app WeChat and posted screenshots of zero-percent tariff rates from a customs database.

Beijing has remained defiant in response to Trump’s more conciliatory tone this week. The two sides have struggled to agree even on whether talks are taking place, let alone on the steps necessary to climb down from levies so high that they essentially amount to a trade embargo.

Chinese officials declared Trump’s claims of ongoing negotiations to reduce triple-digit tariffs “fake news” Thursday. Trump shot back with a claim that a meeting had taken place that morning, without giving details. Chinese officials on Friday denied, again, that talks are happening.

While Beijing has consistently said it is open to talks, Chinese officials have struggled to understand the Trump administration’s demands, making them reluctant to enter formal negotiations. That lack of clarity has made it almost impossible for Chinese leader Xi Jinping to engage directly with Trump, Chinese political experts have said.

Instead, Xi appears to be betting that he can outlast Trump by rallying the nation with a mixture of patriotic fervor, strengthened domestic demand and state support for key industries.

But with massive tariffs threatening to bring trade between the world’s largest economies to a standstill, the Chinese leadership is also hoping to prevent layoffs and factory closures from dragging down a slowing economy.

The Chinese Communist Party’s powerful Politburo pledged to increase unemployment funds for firms heavily hit by tariffs and to take steps to stabilize employment and the economy as early and effectively as possible.

“We must further consolidate the foundations of our country’s economic recovery, and the impact of internal shocks is increasing,” the 24-member group of top officials said after a meeting Friday.

Beijing has also been searching for ways to stand tough in the trade war without slowing progress toward manufacturing advanced semiconductors, developing pharmaceuticals and other technologies where China hopes to overtake the United States.

Although lists of widespread exemptions have been circulating on Chinese social media, analysts suggested that China is more likely to be providing targeted relief for specific industries or companies it considers of strategic importance.

China is seeking to exempt “irreplaceable” goods, rather than granting widespread exemptions, said an American executive in China familiar with the matter who spoke on the condition of anonymity to share sensitive discussions with Chinese officials.

Some U.S. health-care companies have received imports in China that were not subject to the new tariffs, the executive said.

Soaring trade tensions during Trump’s first term led China’s Finance Ministry to launch a U.S.-specific system for companies to ask for tariff exemptions. Experts say that Beijing used such carve-outs widely — and often without public acknowledgment — to protect its industries from fallout in that first trade conflict.

Asked about the recent exemptions on Friday, a spokesman for China’s Foreign Ministry said he was not aware of the issue. The General Administration of Customs did not immediately respond to a faxed request for comment.

The exemptions are as much about protecting China’s economic interests and its import-reliant chipmakers as they are about being willing to negotiate with Trump, experts said.

“Higher tariffs on these goods would’ve risked significant blowback onto China’s own tech industry, as well as its ambitions to break its dependence on imported goods” — something Beijing considers a “necessary evil” in the near term, said Nick Marro, principal economist for Asia at the Economist Intelligence Unit, a research firm.

In less-critical areas, Beijing has continued to pile pressure on the U.S. economy. Chinese airlines have turned back three Boeing jets since the tariffs took effect. Importers have cut back on purchases of American soybeans and pork. And Beijing has restricted exports of rare earth minerals needed in the manufacturing of electronics, drones and medical equipment.

“We’re still quite a distance away from … an agreement that will be long-lasting and could actually address the U.S.’s grievances with China’s economic practices,” Marro said.