China considers exempting some goods from US tariffs: source

• Beijing prepares tariff exemptions for 8 semiconductor-related items
• China considers exemptions amid weak demand, deflation concerns
• Exemptions ease US pain, reduce pressure on White House. 

China is considering exempting some US imports from its 125% tariffs and is asking businesses to provide lists of 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 no memory chips.

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.

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

Bloomberg first reported China was considering tariff exemptions on Friday.

The exemptions signal that, like Washington, Beijing is deeply concerned about the economic pain rippling across the country as the world's two largest economies decouple.

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 US 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 US economy and take some pressure off the White House.