US-China Trade Talks Higher Claims, Modest Progress but Uncertain Outcome

3D Render of US Import Tarrifs

While leaving White House for a trip to US border with Mexico on the 20th consecutive day of a partial shutdown of the US government, just a day after US and Chinese officials concluded three days of talks in Beijing, President Donald Trump made a high claim that the United States had achieved tremendous success in trade negotiations.

Trade tensions between the world’s two largest economies escalated last year, putting global markets on edge. In early July 2018, US President Donald Trump followed through on months of threats to impose sweeping tariffs on China for its alleged unfair trade practices. So far, the US has already slapped tariffs on $250 billion worth of Chinese products, and has threatened tariffs on $267 billion more. China, for its part, has set tariffs on $110 billion worth of US goods, and is threatening qualitative measures that would affect US businesses operating in China. With neither Trump nor Chinese President Xi Jinping willing to back down, US-China trade tensions could erupt into a full-blown trade war. China’s own Ministry of Commerce warned that the dispute may even lead to the largest trade war in economic history to date.

The meetings in China were the first face-to-face talks since Trump and Chinese President Xi Jinping met in Buenos Aires in December and agreed a 90-day truce in a trade war that disrupted the flow of hundreds of billions of dollars of goods. Trump had accused China of cheating the United States on trade and stealing US intellectual property, though he often said he had a good personal rapport with Xi. We’re negotiating and having tremendous success with China, He added that he found China to be in many ways far more honorable than congressional Democratic leaders Senator Chuck Schumer and House Speaker Nancy Pelosi with whom he is locked in a stalemate in Congress over his demand for $5.7 billion in partial funding to build a wall on the US-Mexico border. The dispute triggered a shutdown of about one-quarter of the federal government, and Trump said he will not sign any bill to reopen the government that does not include funding for the wall.

I think that China is actually much easier to deal with than the opposition party, he said.
Washington presented Beijing with a long list of demands that would rewrite the terms of trade between the world’s two largest economies. They include changes to China’s policies on intellectual property protection, technology transfers, industrial subsidies and other non-tariff barriers to trade. Some 40 days into the 90-day truce, there were few concrete details on progress made so far.
In the meantime, Chinese Ministry of Commrce said that in the latest round of vice-ministerial level trade talks between China and the United States had extensive, in-depth and detailed communication on trade and structural issues, adding that they agreed to maintain close contact after this meeting. The talk has enhanced mutual understanding and laid a foundation for addressing each other’s concerns, said the ministry. The US delegation was led by US Deputy Trade Representative Jeffrey Gerrish.

On December 1, the top leaders of China and the US met on the sidelines of the G20 summit in Buenos Aires. They agreed to continue negotiations, stop imposing new tariffs and exchange visits at an appropriate time. China has already shown its firm determination for success and increased efforts to accelerate its pace of reform and opening-up, especially to further safeguard intellectual property rights, expand market access and increase imports from the US, and make the business environment even more transparent and fair, said Wei Jianguo, vice-president of the China Center for International Economic Exchanges.

These moves are not only to respond to concerns from the US but also to realize the potential of high-level opening-up to the rest of the world, he said. China has always been adopting an open stance toward solving trade disputes with the US. It showed its sincerity through concrete measures. Trade volume between China and the US amounted to $582.82 billion between January and November last year, up 10.9 percent year-on-year, the latest data from the General Administration of Customs showed.

Despite claims of higher gains in the talks, according to some analysts uncertainty over the outcome of China-US trade talks cast a pall over Asian markets as both sides kept mum about what lies ahead. Most Asian markets opened lower after the talks wrapped up the day before without clear indications of whether progress was made on resolving a dispute over Chinese technology policies that has the world’s two biggest economies embroiled in a bruising trade war.

The Chinese Ministry of Commerce statedsaying the two sides had detailed exchanges and would maintain close contact but gave no details. A statement from the Office of the US Trade Representative didn’t characterize the tone of the talks or say what would happen next. It said US negotiators would await guidance on the next steps after reporting back to Washington.
So far, the US side has described the exchanges in a positive light.

Earlier Trump said on Twitter that the talks were going very well! and White House press secretary Sarah Huckabee Sanders told the an American news channel, we’re optimistic. She added, “we expect that something will come of this. I don’t know the timing and exactly what that will look like, but what I can be sure of is that we are moving towards a more balanced and reciprocal trade agreement with China. Still, the US statement said the negotiations dealt with the need for any deal with China to be subject to ongoing verification and effective enforcement a comment that reflects US frustration that the Chinese have failed to live up to past commitments.

The USTR also said the negotiations focused on China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods and other products and services from the United States. Trump has complained repeatedly about the US trade deficit with China, which last year likely exceeded the 2017 gap of $336 billion. The US stocks surged on optimism that the midlevel talks in Beijing will be followed up with discussions between higher-ranking US and Chinese officials. Investors were encouraged that talks planned for two days were extended to three. But the enthusiasm was wearing thin, when Hong Kong’s Hang Seng index fell 0.5 percent in early trading while the Nikkei 225 in Tokyo dropped 1.4 percent.

Washington wants Beijing to change its plans to use government support to make Chinese companies world leaders in robotics and advanced technologies. Chinese officials have suggested Beijing might alter its industrial plans but reject pressure to abandon what they consider a path to prosperity and global influence.Neither side has given any indication its basic position has changed. Economists say the 90-day window is too short to resolve all the conflicts between the biggest and second-biggest global economies. We can confidently say that enough progress was made that the discussions will continue at a higher level, said Craig Allen, president of the US-China Business Council. That is very positive. The council and other US business groups have pressed for a resolution to the trade hostilities between the world’s two biggest economies.

Chinese exports to the US have held up despite tariff increases of up to 25 percent on $250 billion of Chinese imports, partly due to exporters rushing to fill orders before more increases hit. Forecasters expect American orders to slump this year. China has imposed penalties on $110 billion of American goods, slowing customs clearance for US companies and suspending issuing licenses in finance and other businesses. As the trade talks wound down, China’s top economic official, Premier Li Keqiang, met with CEO Elon Musk of electric car brand Tesla Inc. We hope you can get a firm foothold and expand the market, Li told Musk during the meeting at the Great Hall of the People, the seat of China’s legislature. We hope your company can become an in-depth participant in China’s opening and a promoter of the stability of Chinese-US relations. Tesla broke ground this week in Shanghai on its first factory outside the US Musk said production of its Model 3 would start late this year.

China is the largest electric vehicle market and is strongly encouraging its development. Last year it ended restrictions on foreign ownership of EV producers to help spur the industry’s growth, and in July, Tesla announced plans to build the Gigafactory 3 facility in Shanghai.

Beijing has offered concessions on investment regulations and stepping up purchases of American soybeans, natural gas and other exports, seeking to defuse complaints from the U.S. and other trading partners. However, the US side is pressing Beijing to scrap or change rules Washington says block market access or improperly help Chinese companies. The US companies also want action on Chinese policies they complain improperly favor local companies. Those include subsidies and other favors for high-tech and state-owned industry, rules on technology licensing and preferential treatment of domestic suppliers in government procurement.

For its part, Beijing is unhappy with US export and investment curbs, such as controls on dual use technology with possible military applications. They say China’s companies are treated unfairly in national security reviews of proposed corporate acquisitions, though almost all deals are approved unchanged. With cooling economic growth raising the urgency for a settlement, this week’s talks went ahead despite tension over the arrest of a Chinese tech executive in Canada on US charges related to possible violations of trade sanctions against Iran.

At the same time some analyst find numerous reasons and signs of modest progress’ in US-China trade talks because talks yielded some small signs of progress toward resolving the ongoing trade war between the world’s two largest economies but there’s still a long way to go before a meaningful deal. The official statement releaased by US trade delegation noted a long list of ouststanding issues in the relationship between the world’s two largest economies including forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft of trade secrets for commercial purposes, services, and agriculture. The statement also recognized that China had pledged to buy a substantial amount of agricultural, energy, manufactured goods, and other products and services from the US Some analysts said that language, in addition to the meeting extending to a previously unannounced third day, indicated some potential thawing in the dispute.

There are several other signs of modest progress from these mid-level talks. First, negotiations went a day over the original schedule, indicating enough substantive discussion to at least keep officials at the table. Day three reportedly focused on the more knotty structural issues raised by the US side in detailed demands presented to Beijing in May 2018, a group of experts from political risk consultancy Eurasia Group wrote in a Wednesday note. China, for its part, said in a statement issued by Commerce Ministry that the just-concluded round of trade talks with the US were extensive and established a platform for future discussions. Both sides held broad, deep and meticulous discussions on shared observations on trade issues and structural problems, laying the foundation for addressing areas of common concern, the statement said. The talks were also interpreted as a strong signal that Beijing was taking negotiations seriously.

Both parties, the Beijing ministry said, agreed to maintain close contact. In response to the US statement on the talks, US-China Business Council President Craig Allen said in a release that his group was pleased that the two governments had substantive discussions over the past three days. Still, he noted that the business community is concerned about more than just the overall balance of trade between the two economic superpowers a problem that is at least partially addressed by Beijing’s pledge to purchase more US goods and services. We urge both governments to use the time remaining in the 90-day negotiating period to make tangible progress on the important issues at the core of the current dispute: equal treatment of foreign companies in China, as well as China’s intellectual property and technology transfer policies.

Beijing has denied that it forces foreign companies to transfer technology to Chinese parties in exchange for market access, but it has in various ways acknowledged that it could do more to allow overseas players an equal footing within its borders. To what extent such reforms are truly on the Communist Party’s agenda remains a matter of debate. Now, trade is only one part of this, the bigger picture issues around intellectual property, forced sharing of technology et cetera I don’t think those get addressed in the short term. Remember, the thing that we have to solve for is getting to the end of the negotiating period and making sure that enough progress has been made so that tariffs not lifted, we still have that elephant in the room of tariffs.

Asian markets were mostly lower after the end of the latest US-China trade talk. Stock markets globally rallied earlier in the week on optimism that both countries were making progress on trade. Markets have been quite optimistic about this trade talk, so that’s why we’re seeing some profit-taking after the rally. I think the result was pretty much as expected so people are not too excited and they probably will look forward to another meeting.

Moreover, according to some analysts, China-US trade talks have laid a foundation for both sides to reach a future deal despite thorny differences remain, experts are optimistic that both sides will be able to reach an agreement over trade. The three-day closed-door talks enhanced mutual understanding, and established a foundation for solving each other’s concerns. Beijing stressed that both sides agreed to maintain close communication, but provided few other details. The negotiations now pave the way for discussions between both countries. The wide-ranging discussions in Beijing covered structural issues that the Americans have long complained about.

The talks were held with a view to achieving needed structural changes in China with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft of trade secrets for commercial purposes, services, and agriculture.

In addition to the large trade deficit, the talks also focused on China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services from the US. The officials also discussed the need for any agreement to provide for complete implementation subject to ongoing verification and effective enforcement. The issues raised, the trade imbalance problem was solved most smoothly. In other respects, China accepted parts that are in line with its reform, but rejected requests that harm its national security.

The talks were initially scheduled to end on January 8 but were both the sides extended past their deadline, which signified that both sides were very serious about these negotiations. The trade war has seen both sides impose tariffs on hundreds of billions of dollars worth of goods from each other. Experts say these results from the negotiations are within expectations and recent remarks from senior leaders on both sides indicate there is political will for both sides to reach a deal. Both sides would not be able to change their bottomlines after just one round of talks. There are a lot of different opinions and disputes, but both sides need precisely this kind of collisions at this time, to make their demands, positions and views known to the other party and the next round of talks would be about bridging these differences.

Both sides have likely made progress over addressing the trade imbalance, non-tariff barriers and intellectual property rights. But making progress on issues concerning what the US views as structural problems, particularly how China gives its state-owned enterprises unfair advantages in the marketplace, would be more difficult. For both sides to reach a deal, Washington would have to make some concessions and might have to drop some requirements on structural reforms.

Newsletter SignUp