China considers exempting some goods from US tariffs

China is considering exempting some U.S. imports from its 125% tariffs and is asking businesses to identify goods that could be eligible in the biggest sign yet that Beijing is worried about the economic fallout from its trade war with Washington.

A Ministry of Commerce taskforce is collecting lists of items that could be exempted from tariffs and is asking companies to submit their own requests, according to a source who spoke on condition of anonymity.

Financial news magazine Caijing reported on Friday citing sources that Beijing was preparing to include eight semiconductor-related items, although not memory chips.

“The Chinese government, for example, has been asking our companies what sort of things are you importing to China from the U.S. that you cannot find anywhere else and so would shut down your supply chain,” American Chamber of Commerce in China President Michael Hart said on Friday.

Some chamber members say they have imported goods in the past week without the new tariffs being applied, Hart added.

A list of 131 categories of products eligible for exemptions was circulating widely on social media and among businesses and trade groups on Friday. Reuters could not verify the list, whose items ranged from vaccines and chemicals to jet engines.

While Beijing’s ultimate course of action remains unknown, Huatai Securities analysed the list circulating in trade groups and said it corresponded to $45 billion worth of imports last year.

Repeated phone calls to China’s customs department were not answered. Customs and the Ministry of Commerce did not respond to faxed questions.

While Washington has said the current status quo is economically untenable and already offered tariff exemptions to some electronic goods, China has repeatedly said it is willing to fight to the end unless the U.S. lifts its tariffs.

But beneath the bombast, China’s economy is entering the trade war flirting with deflation. Demand is weak and consumer spending and sentiment have never properly recovered from the pandemic levels.

The government is pushing tariff-hit exporters to pivot to local markets, but companies say profits are lower, demand weaker and customers less reliable.

Exemptions are a bigger gesture of support, although by allowing some trade to resume, they also reduce the pain for the U.S. economy and take some pressure off the White House.

Many imports, ranging from petrochemical ethane to pharmaceuticals have few easy alternatives or could take years to manufacture outside the United States.

Big pharmaceutical companies including AstraZeneca (AZN.L) and GSK (GSK.L) have at least one manufacturing site in the U.S. for drugs sold in China, according to Chinese government data.

Major ethane processors have already sought tariff waivers from Beijing because the U.S. is the only supplier.