Mixed results in China/US trade talks: the questions that remain

May 21, 2018

WASHINGTON - The second round of negotiations in Washington between the U.S. and China to resolve a long standing trade dispute has yielded mixed results. With US Commerce Secretary, Wilbur Ross, expected to visit China next to continue the talks, investors will seek credible action from both sides to diffuse trade tensions further, says BBVA in a research note.

“On a positive note, the two sides acknowledged the need to avert a trade war and that continued formal talks were the best way to address bilateral trade issues,” the report says.

 

“Post-meeting statements to this effect from China’s top economic advisor, Liu He, and U.S. Treasury Secretary, Steven Mnuchin, should help soothe unnerved investors’ fears of a lose-lose trade war.

 

“The former noted that ‘both sides agree not to go ahead with imposing tariffs’, while the latter stated: ‘We’re putting the trade war on hold’.

 

The two sides agreed on the need for ‘effective measures to substantially reduce’ the US$375 billion annual trade deficit, as seen in 2017, with China.

 

“China agreed to ‘significantly increase’ its purchase of U.S. goods and services and on the need for meaningful increases in U.S. agriculture and energy exports to China.

 

“Further, China promised to amend relevant laws and regulations, including its patent law, to address important issues revolving around forced technology transfers, cyber theft, and the protection of intellectual property rights.

 

“In this context, the U.S. has asked its agricultural companies to draw up a list of products that could be ramped up for export to China.

 

“China is putting together a list of high-tech products that are currently barred by U.S. exports controls for sale to China but are allowed by other economies.”

 

 BBVA says the past couple of weeks have seen a tit-for-tat gradual de-escalation of trade war tensions between the U.S. and China, akin to the way trade-war threats had escalated between the two since early this year.

 

Responding to Trump’s recent tweet stating that he was working with President Xi to get Chinese telecom major, ZTE, ‘back into business’, China eased roadblocks to M&A deals faced by the U.S. semiconductor company, Qualcomm, among others. And last Friday, China withdrew an anti-dumping investigation on U.S. sorghum exports, the bulk of which are purchased by China.

 

 BBVA says: “Notwithstanding its progress, the latest round of trade talks exposed longstanding fissures dividing the U.S. and China on trade as well as those within the US camp on the appropriate stance to deal with China.

 

“Shrugging off a U.S. proposal that China reduce its trade gap by US$200 billion by end of 2020, China refused to abide by any specific target in US dollars, and, wary of appearing to make concessions to the U.S., noted that its purchases of U.S. goods are intended to meet the growing consumption needs of the Chinese people.

 

“Also, there was no firm agreement on a reprieve for ZTE, an issue, Mnuchin mentioned, which was related to enforcement, rather than trade. A speedy resolution of the ZTE issue is vital to defuse bilateral trade tensions.

 

“China won’t allow its national champions in the technology sector to collapse under U.S. pressure and could stiffen China’s resolve to become technologically independent in the long run.

 

“Adding to uncertainty over the U.S. trade agenda, Mnuchin and US Trade Representative Lighthizer gave contradictory statements over U.S. plans to move forward with proposed tariffs of up to US$150 billion on China.

 

While Mnuchin put the ‘trade war on hold’, Lighthizer noted that the U.S. may still resort to tariffs, as well as other tools including investment restrictions and export regulations, unless China makes ‘real structural change’ to its economy.” www.bbvaresearch.com (ATI).