China-U.S. trade war on hold, tariffs paused

21/05/2018

After a round of talks between Beijing and Washington, U.S. Treasury Secretary Steven Mnuchin announced that the trade war has been put on hold as the two economic superpowers work towards a deal.

 

 

Trade War on Hold 

Also on hold are the $150 billion in tariffs U.S. President Donald Trump had threatened to slap on Chinese imports to prevent the poaching of U.S. intellectual property — one of the administration’s frequent talking points. China under President Xi Jinping responded to the aggression by turning around and threatening tariffs on $50 billion worth of U.S. farm, chemical and other exports.

According to a joint statement released on Saturday, “There was a consensus on taking effective measures to substantially reduce the United States trade deficit in goods with China.”

The deficit hit a record $375 billion last year. While U.S. officials have suggested that China would agree to significantly increase American purchases, by as much as $200 billion, no numbers were locked in.

 

 

“There was a consensus on taking effective measures to substantially reduce the United States trade deficit in goods with China.”

 

 

Instead, the statement simply said that China will increase its import of American energy and agriculture, “To meet the growing consumption needs of the Chinese people and the need for high-quality economic development…This will help support growth and employment in the United States.”

Many see the latest development as a win for the Chinese, as the local media contested the $200 billion figure mentioned by Larry Kudlow, director of the National Economic Council.

The statement was also notably vague on intellectual property protections, the initial catalyst for Trump’s ire. It said that both sides felt it was an important issue to address and would “strengthen cooperation,” a phrase politicos tend to interpret as essentially meaningless.

 

 

China will increase its import of American energy and agriculture, “To meet the growing consumption needs of the Chinese people and the need for high-quality economic development,” according to the statement.

 

 

An investigative probe last August focused on Chinese theft of intellectual property estimated that intellectual property theft by China costs the U.S. “between $225 billion and $600 billion” every year.

A Light at the End of the Tunnel 

The Trump administration initiated talks with China earlier this month by sending a delegation headed by Treasury Secretary Steven Mnuchin to Beijing. The Chinese side was led by State Council Vice Premier Liu He, a close confidant of President Xi. Several contentious meetings seemed to yield little hope for a speedy resolution to the conflict.

A break seemed to come when Trump tweeted May 13 that he and Xi were working on a solution to save Chinese smartphone and telecom gear manufacturer ZTE from going under.

The about-face came after the company said it was halting its major operations  because the U.S. Commerce Department had forbidden American companies from selling it crucial parts it needed to build its smartphones. ZTE had breached a deal struck last year for violating sanctions on Iran and North Korea, failing to punish employees responsible for circumventing the sanctions, the government said.

“Too many jobs in China lost,” Trump tweeted, to the surprise of many. ZTE employs about 75,000 people worldwide and is the fourth most popular smartphone company in the U.S.

 

 

A break seemed to come when Trump tweeted May 13 that he and Xi were working on a solution to save Chinese smartphone and telecom gear manufacturer ZTE from going under.

 

 

Saturday’s statement did not mention the company and White House economics advisor Kudlow has insisted that the company is not going to get off “scot free.” Still, Trump announcing his concern for Chinese jobs seemed to signal a softening stance.

There is speculation that the deescalation by the U.S. is at least in part a strategic move as Washington heads towards a June 12 summit with North Korea, an ally of China.

Who ‘Wins’? 

Almost a year into the trade war, many have wondered who will “win” the trade war, and what victory would mean.

Following Trump’s decision in March to place a 25% tariff on steel and a 10% tariff on aluminumBeijing retaliated by imposing taxes worth $3 billion on imports, including a 15% duty on 120 American products including fruits, nuts, wine and steel pipes and a 25% tax on eight others, like recycled aluminum and pork.

Beijing’s move rattled American business owners and farmers, who feared they were going to lose access to the large Chinese market. With a rapidly growing middle class, China needs to import significant amounts of energy and food to sustain its population and industry.

Jack Ma, CEO of e-commerce giant Alibaba, and Christine Lagarde, Managing Director of the International Monetary Fund previously urged leaders to refrain from increasing tariffs at the Boao Forum in Hainan. Both Maand Lagarde pointed out that global poverty has decreased in conjunction with increased international trade.

The statement released Saturday suggests that the two sides are interested in at least attempting to resolve the dispute diplomatically, rather than with punishing tariffs.

The statement doesn’t enshrine any commitments, analysts pointed out. Tariffs on both sides could be back on the table if the continued negotiations go sour.

Leave a Reply

Your email address will not be published. Required fields are marked *