Confusion About Chinese Tariff Exemptions Isn't a Sign of Thawing Trade War, Expert Says

"While this is a useful reprieve for the favored [Chinese] industries, it's not representative of any larger trend at all," Craig Allen, a senior counselor at the Cohen Group and former president of the U.S.-China Business Council, said in an interview.

Olivier Andries, CEO of French aerospace company Safran, said on an April 25 earnings call that "yesterday night, China has decided to exempt from tax any deliveries of engines, nacelles, lending gears or parts to China."

Reuters quoted the president of the American Chamber of Commerce-China, Michael Hart, as saying that some pharmaceutical companies in his organization had also received word that their imports would be exempt. He said that the Chinese government has been asking companies "what sort of things are you importing to China from the U.S. that you cannot find anywhere else" and therefore "would shut down your supply chain."

While The New York Times and others reported that Chinese companies have already been alerted of exemptions for critical U.S. goods like MRI machines, the Chinese government has remained silent. Foreign Ministry spokesperson Guo Jiakun said at a regular press conference in Beijing the morning of April 25 that he was "not aware of the specifics." He referred to "competent authorities," but the Chinese Ministries of Commerce and Finance have not issued any statements on the matter. He also confirmed that China and the U.S. "are not having any consultation or negotiation on tariffs," and said the U.S. should "stop creating confusion."

It appears that the Chinese government is deleting content that claims that tariff exemptions are being implemented. CNN reported that Chinese company Shenzhen HJET Supply Chain, in a now-deleted post on their social media, said “Fantastic news! We have received a new notice from China Customs, stating that eight tariff codes related to semiconductors/integrated circuits are now exempt from additional tariffs on US imports.” CNN also linked to an archived article, that was allegedly deleted three hours after it was posted, from Chinese news agency Caijing claiming the same.

The confusion about exemptions shouldn't be taken as a sign of a larger thaw in the trade relationship between the U.S. and China, according to Allen. He said that exemptions are "perfectly in-line" with Chinese strategy and are a potential response to President Donald Trump's decision to exempt Chinese electronics from U.S. tariffs. He also said that the Chinese government has "constituencies that are dependent on American exports. They have to take care of those."

While the move from China does "lower the tone a little bit," Allen said that he doubts "it means anything to the larger context of the trade war." Rather, this is evidence of what he called "tactical flexibility" when it comes to trade by the Chinese government. Flexibility has its limits, though, as he said that Xi Jinping has little room to maneuver because "Trump has united the Chinese in opposition to what they see as a bullying policy."

Likewise, Allen said that the U.S. views Chinese demands as a non-starter: the Chinese government "seem[s] to be demanding, as a starting point, tariffs back to the original level. Trump is not going to do that. It would undermine what he’s trying to do with reciprocal tariffs."

"Both sides think that they're winning," he said, which means they are unlikely to back down. That being said, he described the exemptions as an "adroit tactical shift by the Chinese."

A former trade official, who wished to be unnamed, agreed, saying that China is "prepared for this in a way that the Trump administration is not. They have totally underestimated the Chinese and European response."

When asked if there was any hope that the moves from China represented a retreat from brinkmanship, Allen replied, "that’s hopeful thinking, magical thinking."