No more trade war? – Trump: "The relationship I have with President Xi is excellent"!
US President Donald Trump told reporters that a trade deal with China "is possible" in an interview aboard Air Force One. He said he has "a great relationship" with Chinese President Xi Jinping: "But remember, he loves China and I love the United States. So, you know, there's a little bit of competition there, but the relationship that I have with President Xi is, I would say, a great relationship."
He also mentioned that he had previously made a trade deal with China during his first term: "We made a great deal with China, did a lot for farmers, great for manufacturers," referring to the Phase One trade deal that the US and China signed in 2020. "They had about $50 billion of our product and we were forcing them to buy it. The problem is Biden didn't add to it."
There is no further escalation in the US-China trade war
Trump imposed an additional 10% tariff on Chinese imports earlier this month. Two days later, China's State Council Tariff Commission announced it would impose a 15% tax on U.S. coal and liquefied natural gas (LNG), as well as a 10% tax on U.S. crude oil, agricultural equipment and certain vehicles, effective Feb. 10.
According to a report by The Wall Street Journal, China's initial proposal in response to Trump's new tariffs was to reinstate the Phase One trade deal. Other proposed measures included a pledge not to devalue the Chinese yuan and a commitment to reduce exports of fentanyl precursors.
There has been no further escalation since then, although the US president has signaled that any retaliation by countries affected by US tariffs could lead to an increase or expansion of their export costs. He halted a planned 25% tariff on Mexico and Canada after the two countries agreed to strengthen border controls to combat drug trafficking, particularly fentanyl.
Chinese yuan and stock markets gain
The Chinese yuan strengthened sharply against the U.S. dollar on Thursday, boosted in part by Trump's comments on the trade deal. The USD/CNH exchange rate - which measures the dollar against the Chinese offshore yuan - fell 0.65% to its lowest level since November 2024, after briefly touching that level on Jan. 24.
Chinese stock markets also rose on Thursday's news, with the Hang Seng Index (HSI) paring earlier losses of the day, ending 1.6% lower but remaining at its highest level in more than four months. The index jumped 2% in Hong Kong's Asian session on Friday, also boosted by positive earnings from Alibaba.
The Chinese e-commerce giant beat expectations in its quarterly revenue, with the company's AI-powered cloud business achieving its fastest growth in two years. Alibaba shares rose 15% to a three-year high before posting gains in U.S. trading on Thursday.
The HSI is the Chinese benchmark that was heavily weighted by major Chinese technology companies, including WeChat owner Tencent Holdings, Alibaba Group founder Jack Ma, Apple's Chinese rival Xiaomi, and Tesla competitor BYD.
Both the Chinese yuan and Chinese stock markets have been on the rise since Chinese startup DeepSeek unveiled an artificial intelligence model, R1, in late January. The model is a direct competitor to OpenAI’s ChatGDP. Earlier this month, China’s largest electric vehicle maker, BYD, announced its plan to integrate DeepSeek’s artificial intelligence model into its operations, sending its stock price to an all-time high.
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