The impending US-China confrontation and risk of a real trade war between the two countries seemed put aside for the time being at least, especially after President Trump had stated that the trade war with China “was easy to win”. However, once again, like the on-off US and North Korea summit, the issue has crept back again threatening the truce in a looming trade war.
While China has long been touted as being unfriendly to the US, it has come as a bombshell that long time US allies are now under threat from American trade sanctions which, according to the White House, was putting US “security under threat”.
This time, even timid European and Canadian allies have furiously reacted and promised to impose their own retaliatory tariffs on American goods.
While the US has gone from one confrontation to another with opponents and allies alike on trade, the potential damaging trade war between the United States and China was always in the background, threatening not only trade, but cooperation in other geo political strategic relations, especially on paving the way for a successful North Korea-US summit.
Surprise is the key word now and the latest US-China trade talks to avert a full blown trade war is one of them but with an added mixture of tariffs on Europe, Japan, Canada and Mexico for good measure.
American and Chinese officials had gone out of their way since the high-profile visit by Vice Premier Liu He to Washington in May to emphasize that “trade wars are over” – or at least on hold – for now, as Washington and Beijing look to resolve their economic differences through constructive negotiations going forward.
With these dizzying about face turn around in international trade diplomacy, no wonder the global stock market is feeling jittery on which way these trade talks will eventually goDr. Mohamed Ramady
Framework for settlement
To underscore that progress, US officials, rather awkwardly, hinted at a possible framework for settlement of the dispute with Chinese telecoms giant ZTE. While Beijing has announced a reduction in auto tariffs from 25 percent to 15 percent effective July 1 – a promise markets appear to have forgotten was already made by China’s President Xi Jinping last month at the Boao Forum for Asia.
But, according to Chinese officials, the most recent negotiations also touched on and agreed to “work together on the basis of joint efforts” to reduce the US trade deficit with China by $100 billion in 2019, and by $200 billion in 2020.
Chinese officials stressed, however, that China could not reduce its deficit through unilateral actions alone, and urged the US to increase its exports of high tech goods to China, which they believe US officials promised to do.
This, or more precisely, the lifting of the US ban on exports of sensitive high-tech products to China, has been a long time ask of Beijing, and beyond broad pledges, an actual lifting or easing of those restrictions would be controversial, to say the least.
As to how else that elusive $100 billion target might be hit, the two sides agreed that the US will send its “largest delegation ever” to China to attend the first China International Import Expo, to be held in Shanghai from November 5 to November 10 (spanning, incidentally, right across the November 6 US Congressional mid-term elections).
At that Expo, US is being tempted that Chinese firms would pledge to purchase no less than $100 billion worth of US goods and services. While that may not exactly translate into a commitment by Beijing to reduce the bilateral deficit with the US by Washington’s desired amount, it does put Trump’s number out there and may explain the somewhat confused messaging after the trade talks by National Economic Director Larry Kudlow on meeting the $200 billion target figure that was subsequently walked back.
Tariff threat on Chinese imports
As hinted in public, the US side in turn suggested it would delay and, if all goes well, abandon its Section 301 $50 billion tariff threat on Chinese imports, and China would in turn shelf its already announced retaliatory measures against the US.
The two sides then agreed to a follow-on visit by Commerce Secretary Wilbur Ross to Beijing to further discuss trade issues, with a focus especially on agriculture and energy products, marginalizing the more hawkish US administration trade officials like Peter Navarro and US Trade Representative Robert Lighthizer, who is viewed as being more of a hardliner and have reserved the right to return to tariffs, depending on how the talks go.
Just to be clear to all who want to listen, Washington will release a list of some $50 billion worth of Chinese goods that will be subject to a 25 percent tariff on 15 June, 3 days after the 12 June North Korea-US summit. Chinese mediation with North Korea for a successful summit is key, which raises the question whether this was another Trump effort to put pressure on the Chinese to get the North Koreans to the negotiating table.
Furthermore, the United States will also continue to pursue litigation against China at the World Trade Organization (WTO). In addition, the Trump administration will announce investment restrictions and “enhanced export controls” for Chinese individuals and entities “related to the acquisition of industrially significant technology” by the end of June.
With these dizzying about face turn around in international trade diplomacy, no wonder the global stock market is feeling jittery on which way these trade talks will eventually go.
In the meantime, President Trump is determined to wring concessions from Americas trading partners in a belligerent way hoping for them to buckle and give way as the Chinese compromises show . However, the result could be the opposite.
Dr. Mohamed Ramady is an energy economist and geo political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran , Saudi Arabia and co-author of ‘OPEC in a Post-Shale world – where to next ?’ His latest book is on ‘Saudi Aramco 2030: Post IPO challenges’.