Publications
Partners
Chinese Vice Premier Liu He will resume negotiations with his US counterparts in Washington on Wednesday as both governments push for an agreement to end their protracted trade dispute.
The latest round of talks follow discussions last week in Beijing, where Liu met with US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer. Outstanding issues include protection for intellectual property and how to enforce any broader trade agreement.
China touted "new progress" after last week’s talks and both sides have been working line-by-line through the text of an agreement that can be put before Trump and Xi, according to people familiar with the matter. China has already announced various concessions and pledged to open up industries in steps.
Asian stocks bounced with US and European equity futures Wednesday on expectations that a deal could soon materialise. Treasury yields rose.
Any hint that the talks have run into deadlock will unnerve investors and trigger fresh concerns for the world economy, which has already been rattled by tit-for-tat tariffs that the US and China have imposed on each others goods.
Both countries have yet to agree on what happens to existing
US duties on Chinese goods and the terms of an enforcement mechanism to ensure
China keeps to the trade deal, the Financial Times reported, citing people
briefed on the talks.
Other than that, US and China officials have resolved most of the issues surrounding the deal, the FT reported.
Deficit reduction
Negotiations so far have focused mainly on what China will do to reduce its goods trade surplus with the US, which reached a record $419.2bn last year. Beijing has made some big offers in this area, such as a pledge to reduce the deficit to zero by 2024 – close to the end of a potential Trump second term.
That would involve a dramatic, and some say impossible, ramping up of purchases of agricultural goods, commodities, aircraft and other items.
Nevertheless, China has already made moves in this area, including with plans to import record amounts of US pork and re-entering the market for US soybeans.
Boeing Co’s role in this equation has now been complicated by China’s grounding of its 737 Max jet.
Enforcement
A major sticking point has been a US demand that it retain the power to police the application of the deal.
The US wants regular meetings to assess whether China is living up to promises, and wants to be able to impose tariffs on China – with no threat of counter-retaliation – if it fails to do so, White House chief economic adviser Larry Kudlow has said.
That has left negotiators diametrically opposed: China wants
all tariffs that have been imposed in the course of the past 12 months removed,
while the US wants to retain some as part of its enforcement mechanism.
Trump advisers say China has failed to meet commitments in the past, one reason they decided early in the president’s term to emphasise the stick over the carrot.
Currency clause
The US has stoked expectations that the deal will include the strongest ever rules preventing China from devaluing its currency to gain a trade advantage or evade the impact of tariffs.
While Trump has long bashed Beijing for alleged distortion of the yuan, the US has held back from officially naming it as a currency manipulator.
In the talks, China has pushed back hard against any one-sided clause that would bind its hands. Yi Gang, governor of the People’s Bank of China, hinted that the final agreement would resemble previous Group of 20 clauses that committed states to avoid competitive devaluation.
Intellectual property
US demands for improved treatment of its intellectual property is also a central plank of the negotiations, amid claims that Chinese firms routinely copy or steal IP from foreign rivals.
China’s rubber stamp legislative chamber, the National Peoples Congress, in March approved a new foreign investment law that the government claims will ensure all companies registered in China are treated equally.
Trade hawks in Washington have also raised concerns about Beijing’s subsidies for state owned companies, which they argue block competition and allow China to develop strategic industries.
Global growth
Much is riding on the outcome of the talks. Christine Lagarde, the International Monetary Fund’s managing director, on Tuesday warned that the world economy is in a precarious position.
She also reiterated her warning for countries to avoid
imposing new tariffs on each other. An increase in tariffs by 25 percentage
points on all goods traded between the US and China would reduce annual output
in the US by up to 0.6%, and up to 1.5% in China, she said.
Lagarde’s warning follows a move by the World Trade Organisation (WTO) to slash its global trade growth projection for 2019 to the lowest level in three years, citing the impact of rising commercial tensions and tariffs.
World merchandise trade growth will slow to 2.6% this year and 3% next year, after notching 3% in 2018, the WTO said in a report published Tuesday. In September, the WTO said trade would increase by 3.9% in 2018 and 3.7% in 2019.
