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Trump and China signal tougher stands ahead of high-stakes talks

May 09 2019 16:21
Shawn Donnan, Jenny Leonard and Miao Han, Bloomberg

The US and China have signaled hardening positions as they prepare for high-stakes talks in Washington to try and avoid an escalation in a year-old trade war that has cast a long shadow over financial markets and the global economy.

China’s top trade envoy, Vice Premier Liu He, is due to land in the US capital on Thursday afternoon and go immediately into discussions with President Donald Trump’s top negotiator, Robert Lighthizer. US tariffs on some $200 billion in Chinese goods are set to increase to 25% just hours later in a move that economists and businesses say risks being the most economically consequential of all of Trump’s tariff moves so far.

But the mood on both sides going into the talks appears to be hardening with Lighthizer calling members of Congress ahead of the discussions to warn that a deal this week is unlikely, according to people familiar with the conversations. While Trump on Wednesday insisted that Liu was coming to make a deal and dubbed him a "good man" he also roiled Asian markets again by saying China "broke the deal" by backsliding on prior commitments, leading him to order higher tariffs.

China has disputed Trump’s characterisation that the country reneged. But it has also sent its own signals that a deal could take time.

Unlike in some of his previous visits to Washington, Liu is not traveling with the designation "special envoy" of Xi Jinping, according to people briefed on his trip. Chinese officials’ public statements have also hardened in recent days with Beijing vowing to retaliate against Trump’s tariff increase and rejecting the idea that it has reneged on any commitments made during the months of tough negotiations that have led to this week’s showdown.

“China is credible and honors its word and that has never changed,” Commerce Ministry Spokesman Gao Feng told reporters on Thursday.

The Ministry of Commerce also announced it would soon publish details of new retaliatory tariffs.

The souring mood caused global stocks to slump again. US equity futures pointed to falls at the open on Thursday while the yuan dropped to its weakest since January. Some analysts believe a collapse in talks would trigger a major selloff in risk assets.

At a meeting on Tuesday, Trump and his trade team discussed the next steps in the dispute and who should meet with Liu while he’s in Washington, people familiar with the internal deliberations said. The meeting became contentious when Treasury Secretary Steven Mnuchin made his case for putting trust in Liu that China would come back with a satisfactory offer to close the deal, they said.

Liu was treated to public Oval Office sit-downs with Trump every time he traveled to the US for trade talks in recent months. But the president and his advisers concluded that he should only meet with Liu if the two sides make progress in the talks and that the decision would be made on short notice, the people said.

The meeting also left Lighthizer - a longtime China hawk who has advocated raising pressure on Beijing further - in firmer command of the negotiations with Mnuchin likely to play a smaller role this round, one person briefed on the situation.

A Treasury spokesman disputed accounts of Mnuchin having a smaller role in the negotiations going forward and that he faced any criticism within the administration this week, saying that Trump’s trade team remains unified.

Tariff Pressure

Lighthizer has in recent days been calling members of Congress telling them to brace for no deal and to confirm the decision to increase tariffs on the $200 billion tranche of products from China is firm, one person briefed on the deliberations said. That is in part because even as Liu’s visit to Washington this week has been shortened, the agenda has grown more complicated.

Trump’s decision to raise tariffs came after China reneged on its prior commitment to enshrine a wide range of concessions in Chinese law, according to US officials.

China’s refusal to commit to law changes as part of the deal made it impossible that a final agreement can be reached this week, people briefed on the negotiations said. They noted that apart from the most recent rift in the talks, there are other major outstanding issues such as the removal of the existing tariffs between the two nations that still have to be resolved.

Both sides still want a deal, but can’t get over the last few disputes, China’s state-run Global Times wrote in an editorial on Thursday, adding that China and the US seem ready to shift to the “fighting while talking” mode from the previous truce agreed in December. Liu is scheduled to be Washington for two days of talks with US officials though some people familiar with Liu’s plans said it could extend into the weekend.

“We hope that the US can work together with China and meet each other halfway on the basis of mutual respect and equality,” Foreign Ministry spokesman Geng Shuang said Thursday in Beijing.

At Wednesday’s rally in Florida, Trump said there was “nothing wrong with taking in $100 billion a year” in tariffs on Chinese imports, in the absence of a trade deal. “They come in tomorrow and whatever happens, don’t worry about it. It will work out. It always does,” he said. While Trump insists China bears the cost of those tariffs, most economists say it is US consumers and companies that are footing the bill.

The tougher line from Trump has drawn praise from China hawks inside and outside the administration. “Welcome to Thunderdome - the long economic war waged on America by the CCP has now been joined by President Trump,” said Steve Bannon, Trump’s former chief strategist.

Data released on Thursday offered Trump a chance to claim his tariff war is yielding the desired result. The US trade deficit with China decreased to the narrowest in almost three years as imports slowed and exports advanced.

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