The US and China seemed to have made progress on trade, but there are still gaps to bridge
The table was set for dinner and adorned with a centrepiece of brightly-coloured flowers. The menu included delicacies such as sirloin, Malbec and caramel-rolled pancakes. And sat opposite one another were the leaders of the two of the world’s biggest nations.
On one side was Chinese President Xi Jinping; on the other was US President Donald Trump (with the two flanked by their most senior representatives). The seating of the premiers was a fitting visual metaphor for the trade standoff their respective nations have been locked in for what feels like an age. However, at this dinner meeting, which occurred at the start of December following the 2018 G20 Buenos Aires summit in Argentina, there looked to be signs of a ceasefire.
In a post-meeting statement, the White House said that President Trump has agreed that on January 1, he will keep tariffs on $200bn worth of product at the 10% rate and not increase this rate to 25% (right now). The White House also explained that China will buy a “very substantial” amount of agricultural, energy, industrial and other product from the US to lower the two nations’ trade imbalance, as well as claiming that China has agreed to start purchasing agricultural product from US farmers straightaway.
The statement also said that Presidents Trump and Xi have agreed to start immediate negotiations on structural changes regarding forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture (it should be noted that Chinese intellectual property is a topic that has played a key role in the US–China trade war). Both agree on trying to get this transaction done in the next 90 days, but if no agreement can be come to at the end of this timeframe, tariffs will go up to 25%.
It was claimed that scepticism was growing over the two superpowers’ ability to get a concrete deal
Both sides were positive about the meeting. Ministry of Foreign Affairs of the People’s Republic of China spokesman Geng Shuang said the leaders “reached important consensus, which charted the course for China–US relations going forward”, while President Trump, through his seemingly-favourite spokesperson, Twitter, described the meeting as “extraordinary”.
“Farmers will be a a very BIG and FAST [sic] beneficiary of our deal with China,” he said. “They intend to start purchasing agricultural product immediately. We make the finest and cleanest product in the World [sic], and that is what China wants. Farmers, I LOVE YOU [sic]!”
The US leader went on to argue that the Chinese premier and himself were the only people able to “bring about massive and very positive change” regarding trade. The day before these tweets, he tweeted that China had agreed to lower and eliminate tariffs on cars coming into the East Asian nation from the US, with the levy set at 40% at the time of writing.
Steve Tsang, director of the SOAS China Institute at SOAS University of London, said that, at least in the short-term, President Xi “has done well out of this meeting”.
“Being able to kick this can down the road is very useful to him,” he argued.
However, some experts said that although the 90-day deadline offers momentary relief for President Xi, it also generates pressure. The new time limit is now set for the eve of China’s annual legislative session, a timeframe when, experts said, President Xi will be expected to show results. What’s more, soon after the meeting, it was claimed that scepticism was growing over the two superpowers’ ability to get a concrete deal to avoid new (or expanded) bilateral levies. Three days after the meeting, it was reported that the Dow Jones Industrial Average had dropped 200 points. Driving the market was this scepticism, as investors focused on the lack of specific concessions made by China at the G20 summit. Additionally, there was confusion over the start of the 90-day timeframe after Larry Kudlow, Director of the National Economic Council under President Trump, mistakenly said the negotiating window would start on January 1. The White House later stated that it began on December 1.
The day after tweeting about his meeting with President Xi, President Trump wrote on the social networking site that the talks with China have already started and, unless lengthened, will finish 90 days from the date of the dinner.
“Bob Lighthizer will be working closely with Steve Mnuchin, Larry Kudlow, Wilbur Ross and Peter Navarro on seeing whether or not a REAL [sic] deal with China is actually possible,” he said. “If it is, we will get it done. China is supposed to start buying Agricultural [sic] product and more immediately. President Xi and I want this deal to happen, and it probably will. But if not remember, [sic] I am a Tariff Man [sic]. When people or countries come in to raid the great wealth of our Nation [sic], I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs [sic].”
The President went on to say that “if a fair deal is able to be made with China, one that does all of the many things we know must be finally done, I will happily sign”. Later, he wrote that the US is “either going to have a REAL DEAL [sic] with China, or no deal at all — at which point [the US] will be charging major Tariffs [sic] against Chinese product being shipped into the US”.
“Ultimately, I believe, we will be making a deal — either now or into the future,” he said, adding that China does not want levies.
Four days after the meeting, the Ministry of Commerce of the People’s Republic of China acknowledged for the first time, in a statement, that China had agreed to a 90-day ceasefire to let negotiations occur. According to the statement, the negotiations have a “clear timeline and road map” and China aims to rapidly put in place “an agreed-upon consensus”. The statement came in the week that key government agencies and China’s supreme court announced severe punishments for intellectual property infringement. However, the statement didn’t include buying agricultural and other products, tariff decreases for imports of US autos or negotiating regarding intellectual property protection, technology transfers and other structural issues the US claims are on the agenda.
What’s more, lots of Chinese economists and academics see President Trump’s trade strategy as creating confusion to get concessions from China. Yu Yongding, researcher with the Chinese Academy of Social Sciences, said that China should get ready “but not rush to make concessions”.
He argued: “This is a competition of endurance to see who breaks first.”
With confusion still swirling around a truce, China and the US are certainly not out of the woods yet in terms of their trading relationship.
The Baltic Exchange’s next Shipping Economics & Investment course will be held on January 14 and 15 in London. More information can be found here.