US Urges China to Buy More Chips, Cut Auto Tariffs to Avert Trade War

President Donald Trump’s administration is secretly negotiating with China ways to improve U.S. company access to Chinese markets, The Wall Street Journal reported, easing fears of an imminent full-blown trade war between the world’s two biggest economies and offering hope to the many exporters that generate significant revenue streams from the People’s Republic.

The Journal, citing people familiar with the matter, said talks between Lie Hu, who was recently appointed to oversee China’s economy, U.S. Treasury Secretary Steven Mnuchin and U.S. trade representative Robert Lighthizer cover various industries, including financial services and manufacturing. According to the sources, Mnuchin and Lighthizer sent a letter to Liu late last week filled with a list of requests aimed at reducing China’s bilateral trade deficit by $100 billion.

In the letter, they asked China to reduce tariffs on U.S. autos, buy more U.S. semiconductors, offer greater regulatory transparency, provide greater access to its financial sector and end the requirement that American firms must enter into joint ventures with Chinese companies to access the Chinese market. Mnuchin is now believed to be considering a trip to Beijing to pursue these negotiations. The Financial Times reported that China has agreed to buy more chips from the U.S. by diverting purchases away from South Korea and Taiwan to trim its surplus.

Shares in U.S. semiconductor and auto companies rose in pre-market trading on Monday along with the major indexes. Intel Corp. (INTC) was up 2.71 percent, Nvidia Corp. (NVDA) was up 2.31 percent and Qualcomm Inc. (QCOM) was up 1.94 percent while the tech-dominated Nasdaq index was up 1.64 percent. Ford Motor Co. (F) was up 1.61 percent and Fiat Chrysler Automobiles N.V. (FCAU) saw its stock rise 2.57 percent.

Trump’s administration followed up on this letter by personally calling Liu on Saturday to congratulate him on his promotion to vice premier. “Secretary Mnuchin called Liu He to congratulate him on the official announcement of his new role,” a Treasury spokesman said. “They also discussed the trade deficit between our two countries and committed to continuing the dialogue to find a mutually agreeable way to reduce it.”

During their telephone conversation, Liu told Mnuchin that Washington’s recent trade offensive against China would hurt both countries and the world and expressed his hope that the two countries can work together to “maintain the overall stability of their economic and trade relations,” according to the official Xinhua News Agency.

Reports that both sides are working behind the scenes to find a compromise will come as a relief to stock markets. The share prices of U.S. exporters tumbled last week after Washington’s threatened to introduce tariffs on up to $60 billion of Chinese goods, aimed at addressing the country’s $375 billion trade deficit with the world’s second-leading economic power.

In response to this threat, together with Trump’s previous pledge to slap hefty tariffs on steel and aluminum imports, China revealed plans to introduce reciprocal tariffs on $3 billion of imports from the United States, including a 25 percent tariff on U.S. pork imports and 15 percent tariffs on American steel pipes, fruit, and wine. Signs of a mounting trade war sent shares in America’s biggest exporters into retreat and led investors to pull out of equities in favor of Treasury bonds. (See also: Fidelity Investments: Earnings Growth Could Limit Impact From Tariffs.)

Boeing Co. (BA), the largest U.S. exporter, emerged as one of the biggest victims as China had previously threatened to turn to other manufacturers, such as Airbus, if Trump raised levies. Other companies that generate a large portion of sales from China include Caterpillar Inc. (CAT), 3M Co. (MMM), Archer-Daniels-Midland Co. (ADM), Deere & Co. (DE), Nike Inc. (NKE), Apple Inc. (AAPL), Yum! Brands Inc. (YUM) and Starbucks Corp. (SBUX). (See also: 6 Stocks At High Risk In A Trade War.)