US-China Truce Deadline is Close but Talks are not Over Yet

11/02/2019

The 90-days tariff truce is reaching its deadline on March 1. In January, Chinese Vice Premier Liu He met the US President in Washington and the American delegation is expected in Beijing this week. Is the US-China commercial agreement close?

 

There remain less than three weeks till the US new trade tariffs’ suspension will end in March. And as the deadline approaches, the dialogue on possible negotiations between the two main world economies has intensified.

On January 30-31, a Chinese delegation led by Vice Premier Liu He and composed by the number one of the People’s Bank Yi Gang, the Deputy Minister of Finance Liao Min, and the Vice Minister of Foreign Affairs Zheng Zeguang met the US President in Washington.

After the talks held in Washington, the two superpowers seem closer to an agreement to resolve their trade dispute. Donald Trump himself said he feels optimistic about the commercial distension with Beijing.

 

“No final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long-standing and more difficult points,” Trump wrote on Twitter at the end of the weekend in Washington.

 

The latest round of talks included issues such as trade balance, protection of intellectual property rights, technology transfer, tariff and non-tariff barriers faced by American companies in China, as well as mutual economic enforcement.

Liu delivered a message from the Chinese leader to the White House, in which Xi reminded Trump that when they met in Buenos Aires they agreed to improve their relationship through cooperation and stabilityTherefore, the two governments should keep the efforts to reach an agreement as soon as possible by meeting each other in order to establish stable win-win cooperation.

“The talks made important progress for the current stage and laid foundations for further consultations at the next stage”, said the Chinese Vice-Premier.

 

US-China Truce Deadline is Close - economy - cifnews

© 123rf. In early 2018, China and the USA engaged in the biggest commercial war in history, which is based on mutual threats of adding taxes on both Chinese and American imports.

 

It has now been one year since the United States started a trade war against China and since then, the two world’s largest economies engaged in a tit-for-tat dispute. The conflict went on through mutual threats of adding taxes on both Chinese and American imports until summer when the US government launched duties of 25% on Chinese products to enter into force the 1st of January 2019.

On one hand, the US President was denouncing unfair Chinese practices on the trade, in particular, intellectual property abuse. On the other hand, Xi Jinping asked the WTO to sanction the illegitimate US anti-dumping policies.

The first of December 2018, the two leaders finally managed to meet in Buenos Aires during the G20 summit meeting in Argentina. According to Chinese and American media, the meeting “was a success” and both sides have agreed to call a truce and take a break from new trade tariffs for 90 days to allow further talks.

The Buenos Aires deal provided that if at the end of the 90-days truce, the parties are unable to reach an agreement, the 10% tariffs on China’s products will be raised to 25%. For its part, the Middle Kingdom agreed to purchase a substantial amount of agriculture, energy and other products from the US in order to reduce the trade imbalance between the two economies.

Indeed, the Chinese purchase of American agricultural products has been the sticking point of Liu He’s attempt to restore US-China dialogue in Washington.

After having bought about 60% of the 2017 US soybean crop, the Dragon cut off that expense during the trade war. However, during the talks with Trump in Washington, Chinese Vice Premier promised further purchases of soybeans.

 

US-China Truce Deadline - soybeans - cifnews

© Pixabay. Due to Chinese decision to levy a 25% tariff on imports of US soybeans, countries like Brazil are replacing the US as the first suppliers of soy for China.

 

For decades, in fact, China has sold a far greater volume of goods to the US than it bought causing a trade deficit in favor of the PRC and provoking Trump’s concerns.

But the decline in imports of consumer goods such as cars and mobile phones due to the increase in US tariffs and China’s growing purchase of agricultural products from the United States led the trade deficit narrow in November, opening new windows of opportunities for the two countries to talk.

Although before the tensions started, the US sold over 30 million tonnes of soybeans to the Dragon annually, Liu He told Trump that Beijing had already started purchasing 5 million tonnes of them.

 

The point about US trade with China is not that its imports are so high. The difference is the low level of US exports that shows a lack of competitiveness of US factories.

 

Nevertheless, the visit of the Chinese delegation in Washington occurred after six months of hard times for American companies in the PRC. Even if it is difficult to correlate it directly with the trade war, US enterprises not only are facing increasing tariffs entering the Middle Kingdom but they are also facing many obstacles in trading and working within the Chinese market.

Surprise inspections, bureaucratic barriers, and inexplicable shipment rejections started last summer resulting in a massive slowdown of the customs processes at the Chinese border, which often led US exporters to lose a big amount of money and time.

The total value of products that the Asian country imports from the United States represent just one-fourth of what it exports, therefore, these commercial targeting of US firms could be seen as a strategy to match tariffs in the tit-for-tat war.

The Chinese government does not seem to want to upset the White House, therefore, this retaliation on overseas companies might not be related to the trade dispute, as opposed to Beijing’s decision to increase import prices by 40%.

In any case, one of the issues addressed during the Washington meeting was right the problem of non-tariff barriers faced by American companies in China.

 

US-China Truce Deadline - trump and liu he - white house - cifnews

© Olivier DoulieryAbaca Press/TNS. US President Donald Trump listens to Chinese Vice Premier Liu He during a meeting to discuss trade issues in the Oval Office of the White House in Washington, on January 31.

 

Now, the truce deadline set on March 1 is getting closer. It is still not clear if the intention is to extend the date beyond March, but what is sure is the commitment of the two superpowers’ leaders in trying “to do a complete deal, leaving nothing unresolved on the table,” as written by Trump on Twitter, otherwise tariffs on $ 200 billion of Chinese imports will increase from 10 to 25%.

The Vice Premier Liu He had proposed a meeting between Donal Trump and Xi Jinping on the island of Hainan in late February after the summit scheduled between the US President and the North Korean leader Kim Jong-un. But the Hong Kong newspaper, South China Morning Post, then revealed the meeting was planned in Da Nang, Vietnam, on February 28-29.

However, last Thursday, Trump said that he would not meet with President Xi this month, raising new concerns about the possibility to reach a trade deal before March.

According to the New York Times, a senior administration official suggested that, if talks will continue to be constructive this month, the US President might offer an extension to the truce deadline. He also added that a deal could also be reached without a formal face-to-face meeting, with final details worked out by phone or video conference.

Therefore, talks are not over yet, and the Treasury Secretary Steven Mnuchin together with the Trade Representative Robert Lighthizer will lead an American delegation to Beijing this week for more trade negotiations.

The 90-days tariffs break deadline is approaching and the intensification of the US-China dialogue shows signs of optimism. Although the tit-for-tat strategy seems to go in the opposite direction, both the leaders are taking further steps to reach a final deal and to exit this “war without victors” in the best way.

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