USA, China Trade Talks End Without Progress

by Ike Obudulu Posted on August 24th, 2018

Beijing, China : The two day trade talks between United States and China in Beijing have ended with no major breakthrough as their trade war escalated with activation of another round of dueling tariffs. At the same time, their trade war escalated with another round of dueling tariffs on $16 billion worth of each country’s goods taking effect

It was the first face-to-face US-China meeting since early June to try to find a way out of a deepening trade conflict and escalating tariffs.

The two sides had met with low expectations for this week’s meetings and no further talks had been scheduled, a person familiar with the discussions said. The person, who requested anonymity to discuss the private deliberations, also said Chinese officials had raised the possibility that no further negotiations could happen until after November’s mid-term elections in the U.S.

The lack of progress and the looming prospect of further tariffs from both sides adds to the uncertainty for businesses, who have to decide whether it makes sense to invest in China or the U.S., given the rising political tensions and risk of punishing new taxes on trade. A new round of tariffs could come as soon as early September, but there is no guarantee that will be the last, or that there won’t be other measures.

“Now, it seems quite likely that the US will impose tariffs on the $200 billion in imports from China, which will trigger a bigger round of shooting,” said Zhou Xiaoming, a former commerce ministry official and diplomat. “It is impossible for China to drop the ‘Made in China 2025’ and its industrial policies as a compromise. But there is haggling room in IP protection and market access issues,” he said, referring to intellectual property protection.

In a statement, the White House said the countries “exchanged views on how to achieve fairness, balance, and reciprocity in the economic relationship, including by addressing structural issues in China” identified by the U.S. in an investigation into Chinese IP practices. The two nations had “constructive, candid” communication, and will keep in touch about the next steps, the China commerce ministry said in a statement released Friday.

The conclusion of the talks came just hours after Beijing and Washington rolled out their latest round of tit-for-tat tariffs on Thursday.

The Trump administration is preparing a far larger tranche of tariffs covering some 6,000 products from China with an annual import value of $200 billion. That move and the anticipated retaliation from the Chinese would mark the largest escalation so far and start to hit American consumers more directly. The U.S. could impose the duties after a comment period ends Sept. 6.

The two days of talks led by U.S. Treasury Undersecretary for International Affairs David Malpass and Vice Commerce Minister Wang Shouwen marked the first major interaction between the two sides since June. According to the person familiar with the discussions, the U.S. Treasury presented a revised version of the provocative list of demands presented by the Trump administration when the two sides had their first high-level meetings in May.

The Chinese delegation, meanwhile, showed no signs of bringing any significant compromises to the table this week. Chinese officials have told visitors to Beijing that they see their potential responses as broken down into three separate baskets, the person said.

Additional purchases aimed at satisfying President Donald Trump’s desire to reduce the trade deficit amount are one that China could deliver quickly. The second includes more substantive reforms that in many cases are already in train, such as opening up China further to U.S. credit card companies. China officially removed limits on foreign holdings in domestic banks and asset management companies, it announced late Thursday.

But the third basket of more difficult reforms, such as to industrial policy, are considered a no-go zone by Chinese policy makers, the person said.

A deal is almost impossible now, as Trump’s domestic political scandals may cause him to be more aggressive on foreign policy, according to Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation affiliated with the Ministry of Commerce. “For China, the most important thing now is to fix its domestic weaknesses, and get prepared for the worst-case scenario of a protracted trade war with the U.S.”

Even relative doves inside the Trump administration have begun pressing for China to make significant structural reforms by unwinding industrial subsidies and at least scaling back its “Made in China 2025” plan to lead the world in industries such as artificial intelligence and robotics. Yet the Chinese side has continued to offer only increased purchases of American commodities aimed at reducing the U.S. trade deficit, believing that is the best tactic to try and see off further U.S. tariffs, said the person familiar with the discussions.

Trump on Thursday highlighted new tougher restrictions aimed at Chinese investment in the U.S. at a White House event and said he was committed to continuing his trade fight against China. “We can’t allow the things that were happening to happen,” Trump told a meeting with legislators.

U.S. officials are due to meet in Washington on Friday with delegations from the European Union and Japan to discuss joint efforts to confront China at the World Trade Organization over its industrial subsidies and the conduct of its state-owned enterprises.

Asian stocks fell on Friday after U.S.-China trade talks ended without progress and market focus shifted to a speech by the Federal Reserve chairman for fresh clues on the direction of U.S. monetary policy.

Spreadbetters expected European stocks to open mixed, with Britain’s FTSE .FTSE dipping 0.15 percent, Germany’s DAX .GDAXI rising 0.1 percent and France’s CAC .FCHI edging up 0.05 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.25 percent. It was still up about 1 percent on the week.

Hong Kong’s Hang Seng .HSI fell 0.55 percent and the Shanghai Composite Index .SSEC dropped 0.35 percent.

Australian stocks rose 0.15 percent and South Korea’s KOSPI .KS11 advanced 0.2 percent. Japan’s Nikkei .N225 climbed 0.65 percent, lifted by a weaker yen.

“Global risk sentiment remains somewhat jittery ahead of Fed Chair Powell’s speech with U.S.-Sino trade talks failing to yield any immediate progress,” strategists at OCBC Bank wrote.

The S&P 500 .SPX shed 0.17 percent overnight to pull back slightly from a record high scaled midweek, with industrial shares sagging after the United States and China imposed a fresh round of trade tariffs on each other.

Shares of industrial giants Caterpillar Inc (CAT.N) and Boeing Co (BA.N), bellwethers of trade confidence, were among the biggest drags on the Dow .DJI, which lost about 0.3 percent. Caterpillar shares fell 2.0 percent, and Boeing shares fell 0.7 percent.

In immediate focus was the speech by the Fed Chairman Jerome Powell to be given later on Friday at the Jackson Hole, Wyoming, meeting of central bankers.

Where Powell stands on the pace of interest rate hikes will be scrutinized after minutes from the Fed’s most recent policy meeting indicated the central bank would tighten monetary policy soon.

“For equities, the key point will be whether Powell indicates that the Fed is poised to hike rates two more times this year. That would fall in line with expectations and not cause much of a stir,” said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.

“Any mention of recent turbulence in the emerging markets may also provide the risk asset markets with some relief.”

U.S. President Donald Trump reiterated his displeasure with the Fed’s rate hikes earlier this week and investors waited to see whether Powell would respond to such criticism.

The Fed should raise rates further this year and probably next year as well, despite Trump’s opposition to tighter policy, Kansas City Fed President Esther George said in interviews aired on Thursday.

Dallas Fed President Robert Kaplan also said Trump’s comments would not affect the central bank’s decision making.

The dollar index against a basket of six major currencies stood at 95.567 .DXY, holding most of its gains after rising 0.55 percent overnight to snap a six-day losing run.

The greenback extended its overnight surge to touch a two-week high of 111.49 yen JPY=. The euro was 0.15 percent higher at $1.1553 EUR= after retreating 0.5 percent the previous day.

The Australian dollar received some respite after Australian Treasurer Scott Morrison won a ruling party leadership vote, paving the way for him to become the country’s next prime minister and ending a week of political uncertainty.

The Aussie was up 0.4 percent at $0.7277 AUD=D4. On Thursday, it slumped 1.4 percent as Australian Prime Minister Malcolm Turnbull faced challenges to his leadership.

Onshore Chinese yuan CNY=CFXS slipped 0.2 percent to 6.8916 per dollar, its weakest in a week.

Oil prices edged higher. While the trade conflict between Washington and Beijing darkens the economic outlook, the supply versus demand position in oil markets remains relatively tight -especially because of the looming U.S. sanctions against Iran. [O/R]

Brent crude futures rose 0.45 percent to $75.07 per barrel LCOc1, while U.S. crude CLc1 added 0.6 percent to $68.25.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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