Jeff Mason and David Lawder

Tensions Between US and China Ratchet up as Tariff Hikes Set to Take Effect

The 10-month-old trade war between the two countries has already cost companies billions of dollars.

Washington: Top US and Chinese trade negotiators concluded the first of two days of talks on Thursday to rescue a trade deal that is close to collapsing as Washington prepares to go ahead with plans to hike tariffs on hundreds of billions of dollars of goods imported from China.

Tension between Washington and Beijing has risen after a major setback in negotiations last week when China revised a draft deal and weakened commitments to meet US demands for trade reform.

President Donald Trump responded by ordering a tariff hike, and China has said it would retaliate. The 10-month-old trade war has already cost companies in both countries billions of dollars.

Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin talked for 90 minutes on Thursday and were expected to resume talks on Friday. Officials did not speak to reporters as they left the talks.

In comments to Chinese state media upon arriving in Washington, Liu said that hiking tariffs “is very disadvantageous to both parties”.

“We come here this time, under pressure, which shows China‘s greatest sincerity, and want to sincerely, confidently, and rationally resolve certain disagreements or differences facing China and the US. I think there is hope,” he said.

Before they get back around the table on Friday, the US will have increased duties on $200 billion of Chinese goods, to 25% from 10%. The duties apply to cargo leaving China after 12:01 am EDT (0401 GMT) Friday.

Also Read: Trump Must Avoid Trade Wars to Make America Great Again

Consumer products, including cell phones, computers, clothing and toys, are to be especially hard hit.

Lighthizer and Mnuchin have agreed with Liu to continue trade talks on Friday morning, a White House spokesman said on Thursday. Trump met with Lighthizer and Mnuchin earlier to discuss the talks.

Trump on Thursday took aim at the $325 billion in Chinese goods that are so far untouched by the trade war, saying he was “starting…paperwork today” to tax those with a punitive tariff of 25%.

Trump, who has adopted protectionist policies as part of his “America First” agenda aimed at rebalancing global trade and boosting US manufacturing, accused Beijing of reneging on commitments made during months of negotiations.

“We were getting very close to a deal, then they started to renegotiate the deal. We can’t have that. We can’t have that,” Trump said at an event at the White House.

Trump said if the two sides cannot make a deal, the US would go back to manufacturing products that China now makes. “It’ll be the old-fashioned way, the way we used to do it: We made our own product.”

US stock indexes closed lower on Thursday ahead of the trade talks, though they pared losses after Trump said he had received a “beautiful” letter from Chinese President Xi Jinping. US oil prices slid and US Treasury yields fell as investors sought safe-haven assets.

US President Donald Trump (L) and China’s President Xi Jinping shake hands while walking at Mar-a-Lago estate after a bilateral meeting in Palm Beach, Florida, US., April 7, 2017. Credit: Reuters

Data released Thursday showed the US goods trade deficit with China shrank to its smallest level in five years in March, which could further embolden Trump as he escalates the trade war with Beijing.

Plans by Washington to hike tariffs could cut China‘s growth by 0.3% points but the strengthening economy has become more resilient to external shocks, a Chinese central bank adviser said on Friday.

Also read: Will the WTO Finally Tackle the ‘Trump’ Card of National Security?

Tense Talks

China appealed to the US to help salvage the deal earlier on Thursday. Commerce Ministry spokesman Gao Feng said the decision to send Liu to Washington despite the tariff hike threat demonstrated China‘s “utmost sincerity.”

“The US side has given many labels recently, ‘backtracking,’ ‘betraying,’ etc….China sets great store on trustworthiness and keeps its promises, and this has never changed,” he told a news briefing in Beijing.

A source familiar with the talks said China‘s changes to the language of the draft trade deal were so extensive it could take a month to fix them, assuming the US rejects them.

The talks could still go several ways, a person close to the discussions said.

China could make some concessions to prolong talks even after tariffs and retaliation. The two sides could end negotiations, given they are so far apart. Or China could reverse the changes to the text and return the negotiations to where they were a week ago and work toward a deal to be signed at the G20 summit in Japan in June, the source said.

Wide Rift

Reuters on Wednesday revealed the extent of the rift that has opened between the two countries, reporting that a draft trade agreement text sent by Beijing on Friday night was riddled with changes that marked reversals in Chinese commitments that undermined core US demands.

Also Read: Trump Says China ‘Broke’ Trade Deal’, Vows to Continue Tariffs

In seven chapters of the draft, China deleted commitments to change laws to resolve complaints that caused the US to launch a trade war: theft of US intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation, sources told Reuters.

The stripping of binding legal language from the draft struck directly at Lighthizer’s highest priority. The US trade representative views changes to China‘s laws as essential to verifying compliance after years of what US officials have called empty reform promises.

Trump told supporters at a rally in Florida on Wednesday that China “broke the deal,” and vowed not to back down on imposing new tariffs on Chinese imports unless Beijing “stops cheating our workers.”

(Reuters)

Trump Says China ‘Broke’ Trade Deal’, Vows to Continue Tariffs

Expectations were recently riding high that a deal could be reached, but a deep rift over the language of the proposed agreement opened up last weekend.

Panama City/ Washington: US President Donald Trump said on Wednesday that China “broke the deal” it had reached in trade talks with the US and vowed not to back down on imposing new tariffs on Chinese imports unless Beijing “stops cheating our workers.”

The US Trade Representative’s office announced that tariffs on $200 billion worth of Chinese goods would increase to 25% from 10% at 12:01 a.m. (0401) GMT on Friday, right in the middle of two days of meetings between the Chinese Vice Premier Liu He and Trump’s top trade officials in Washington.

Speaking to supporters at a rally in Florida on Wednesday, Trump accused China of breaking the deal and that Beijing would pay if no agreement is reached.

“I just announced that we’ll increase tariffs on China and we won’t back down until China stops cheating our workers and stealing our jobs, and that’s what’s going to happen, otherwise we don’t have to do business with them,” Trump told a cheering crowd.

“They broke the deal,” he added. “They can’t do that. So they’ll be paying. If we don’t make the deal, nothing wrong with taking in more than $100 billion a year.”

Trump’s comments fueled a round of selling in Asian markets

Beijing has announced it would retaliate if tariffs rise.

“The Chinese side deeply regrets that if the US tariff measures are implemented, China will have to take necessary countermeasures,” China’s Commerce Ministry said on its website, without elaborating.

Also Read: China Considers Canceling Trade Talks With US After Trump Vows to Hike Tariffs

The world’s two largest economies have been embroiled in a tit-for-tat tariff war since July 2018 over US demands that the Asian powerhouse adopt policy changes that would, among other things, better protect American intellectual property and make China’s market more accessible to US companies.

Expectations were recently riding high that a deal could be reached, but a deep rift over the language of the proposed agreement opened up last weekend.

Reuters, citing US government and private-sector sources, reported on Wednesday that China had backtracked on almost all aspects of a draft trade agreement, threatening to blow up the negotiations and prompting Trump to order the tariff increase.

Trump, who has embraced largely protectionist policies as part of his “America First” agenda, warned China on Wednesday that it was mistaken if it hoped to delay a trade deal until a Democrat controlled the White House.

“The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to ‘negotiate’ with Joe Biden or one of the very weak Democrats,” Trump, a Republican, tweeted on Wednesday.

“Guess what, that’s not going to happen! China has just informed us that they (Vice-Premier) are now coming to the US to make a deal. We’ll see, but I am very happy with over $100 billion a year in Tariffs filling US coffers,” he added.

In response, Biden’s deputy campaign manager, Kate Bedingfield, criticized Trump, saying on Twitter that US farmers, small-business owners and consumers were the ones hit by the tariff battle.

Speaking to reporters, White House Press Secretary Sarah Sanders said the Trump administration had received an “indication” that China wants an agreement.

US stock indexes rebounded slightly from this week’s earlier losses after her comments, but the S&P 500 and the Nasdaq closed in negative territory amid caution over trade and some disappointing earnings.

Also Read: Trump Must Avoid Trade Wars to Make America Great Again

Sweeping changes

Washington is demanding Beijing make sweeping changes to its trade and regulatory practices, including protecting US intellectual property from theft and forced transfers to Chinese firms, curbs on Chinese government subsidies and increased American access to China’s markets.

Trump also has sought massive hikes in Chinese purchases of US farm, energy and manufactured products to shrink a gaping US trade deficit with China.

Sources familiar with the talks said China’s latest demands for changes to a 150-page document that had been drafted over several months would make it hard to avoid the US tariff hike on Friday. That increase would affect Chinese imports from computer modems and routers to vacuum cleaners, furniture, lighting and building materials.

Scott Kennedy, a China expert at the Center for Strategic and International Studies in Washington, said the talks were at a delicate stage and much depended on what sort of proposal Liu is bringing to Washington.

“I think the Trump administration is quite serious about imposing tariffs,” Kennedy said. “I don’t think Liu He would have agreed to come if he was just going to give the US a lecture.”

(Reuters)

Citing Trade Talk Progress, Trump Delays Tariff Hike on Chinese Goods

The US president did not set a new deadline for the talks, but told state governors that there could be ‘very big news over the next week or two’.

Washington: President Donald Trump said on Sunday he would delay an increase in US tariffs on Chinese goods thanks to “productive” trade talks and that he and Chinese President Xi Jinping would meet to seal a deal if progress continued.

The announcement was the clearest sign yet that China and the United States are closing in on a deal to end a months-long trade war that has slowed global growth and disrupted markets.

Trump had planned to raise tariffs to 25% from 10% on $200 billion worth of Chinese imports into the United States if an agreement between the world’s two largest economies were not reached by Friday.

Also read: Trump Says He’s Inclined to Extend China Trade Deadline and Meet Xi Soon

After a week of talks that extended into the weekend, Trump said those tariffs would not go up for now. In a tweet, he said progress had been made in divisive areas including intellectual property protection, technology transfers, agriculture, services and currency.

As a result, he said: “I will be delaying the US increase in tariffs now scheduled for March 1. Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement. A very good weekend for US & China!”

Mar-a-Lago is the president’s property in Florida, where the two men have met before.

The president did not set a new deadline for the talks to conclude, but he told US state governors gathered at the White House that there could be “very big news over the next week or two” if all went well in the negotiations.

The White House did not provide specific details on the kind of progress that had been made.

China’s official Xinhua news agency said in a commentary that the goal of an agreement was getting “closer and closer”, but also warned that negotiations would get more difficult as they approached the final stages.

“The emergence of new uncertainty cannot be ruled out, and the long-term nature, complexity, and difficulty of China-US trade frictions must be clearly recognized,” Xinhua said.

Trump and Xi called a 90-day truce last year to give their advisers time to negotiate a deal. The threat of tariff increases represented significant leverage for the Trump team as Beijing is trying to stabilise China’s cooling economy.

“We can’t be sure whether this constitutes a major cave or success because we don’t know the details of what has been negotiated. But … agreeing to extend negotiations a few more weeks definitely is in China’s interests,” said Scott Kennedy, a China expert at the Center for Strategic and International Studies in Washington.

“At this point, the US has likely gotten all it’s going to get out of China.”

J.P. Morgan Asset Management market strategist Tai Hui said the move suggested both sides wanted a settlement of the dispute and added that further tariff escalation would have added to concerns about the US growth outlook.

Markets, which have been sensitive to the dispute as it has slowed global growth, and some US trade associations cheered Trump’s move.

US equity index futures opened higher on Sunday evening as trading kicked off for the week. S&P 500 e-mini futures ticked higher after Trump’s tweets on trade, suggesting Wall Street would open on positive footing on Monday morning.

Asian shares scaled a five-month high and the Australian dollar, a proxy for China investments, got a 0.4% lift from the news. [MKTS/GLOB]

Chinese stocks and the yuan jumped at the start of trade, with the benchmark Shanghai Composite index up 2.1%, its highest since August 1, and the yuan hit its strongest level against the dollar since July.[.SS]

Trump leaves on Monday for Vietnam, where he will hold a summit with North Korean leader Kim Jong Un. The president, who faces a re-election battle next year, has portrayed his engagement with Kim and forcefulness with China as key successes of his presidency.

Enforcement sticking point

Trump said on Friday there was a “good chance” a deal would emerge. But his lead trade negotiator, US Trade Representative Robert Lighthizer, emphasized then that some major hurdles remained. Lighthizer has been a key voice in pushing China to make structural reforms.

China’s negotiators stayed for the weekend and the two sides discussed the thorny issue of how to enforce a potential trade deal on Sunday, according to a person familiar with the talks. Tariffs and commodities were also on Sunday’s agenda, he said.

Negotiators have been seeking to iron out differences on changes to China’s treatment of state-owned enterprises, subsidies, forced technology transfers and cyber theft.

Washington wants a strong enforcement mechanism to ensure that Chinese reform commitments are followed through to completion, while Beijing has insisted on what it called a “fair and objective” process. Another source briefed on the talks said that enforcement remained a major sticking point as of Saturday.

Reuters reported on Wednesday that both sides were drafting memorandums of understanding (MOUs) on cyber theft, intellectual property rights, services, agriculture and non-tariff barriers to trade, including subsidies.

Trump said he did not like MOUs because they are short-term, and he wanted a long-term deal. That sparked a back-and-forth with Lighthizer, who argued that MOUs were binding contracts, before saying they would abandon the term altogether going forward.

The source familiar with the talks played down the apparent tension between the top trade negotiator and the president, saying Trump, a former New York businessman, had viewed MOUs from a real estate perspective, while Lighthizer had done so from a trade perspective. There was no daylight between the two men, the source said.

At the White House event with governors on Sunday, Trump said Lighthizer was doing a “fantastic” job.

Trump Says He’s Inclined to Extend China Trade Deadline and Meet Xi Soon

US and Chinese negotiators had made progress, Trump told reporters- “I think that we both feel there’s a very good chance a deal will happen”, as he met with his top negotiators and their counterpart, Chinese Vice Premier Liu He.
Trump said.

Washington: President Donald Trump said on Friday there was ‘a very good chance’ the US would strike a deal with China to end their trade war and that he was inclined to extend his March 1 tariff deadline and meet soon with Chinese President Xi Jinping.

US and Chinese negotiators had made progress and will extend this week’s round of negotiations by two days through Sunday, Trump told reporters at the White House as he met with his top negotiators and their counterpart, Chinese Vice Premier Liu He.

“I think that we both feel there’s a very good chance a deal will happen,” Trump said.

Liu agreed there had been ‘great progress’.

“From China, we believe that (it) is very likely that it will happen and we hope that ultimately we’ll have a deal. And the Chinese side is ready to make our utmost effort,” he said at the White House.

The Republican president said he probably would meet with Xi in March in Florida to decide on the most important terms of a trade deal.

Extending the deadline would put on hold Trump’s threatened tariff increase to 25% from 10% on $200 billion of Chinese imports into the US.

That would prevent a further escalation in a trade war that already has disrupted commerce in goods worth hundreds of billions of dollars, slowed global economic growth and roiled markets.

Optimism that the two sides will find a way to end the trade war lifted stocks, especially technology shares. The S&P 500 stock index reached its highest closing level since Nov. 8. Oil prices rose to their highest since mid-November, with Brent crude reaching a high of $67.73 a barrel.

Currency Agreement

Trump and Treasury secretary Steven Mnuchin said the two sides had reached an agreement on currency. Trump declined to provide details, but US officials long have expressed concerns that China’s yuan is undervalued, giving China a trade advantage and partly offsetting US tariffs.

Announcement of a pact aimed at limiting yuan depreciation was putting ‘the currency cart before the trade horse,’ but would likely be positive for Asian emerging market currencies, said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.

“How can you agree to avoid excessive Chinese yuan depreciation or volatility if you have not made an agreement on trade that could have huge Foreign Exchange (FX) implications?” Ruskin asked in a note to clients.

In a letter to Trump read aloud by an aide to Liu at the White House, Xi called on negotiators to work hard to strike a deal that benefits both country.

Trump said a deal with China may extend beyond trade to encompass Chinese telecommunications companies Huawei Technologies and ZTE Corp.

The Justice Department has accused Huawei of conspiring to violate US sanctions on Iran and of stealing robotic technology from T-Mobile US Inc.

Chinese peer ZTE was last year prevented from buying essential components from US firms after pleading guilty to similar charges, crippling its operations.

Memorandums no more

Trump appeared at odds with his top negotiator, US Trade Representative Robert Lighthizer, on the preliminary terms that his team is outlining in memorandums of understanding for a deal with China. Trump said he did not like memorandum of understanding (MOUs) because they are short term, and he wanted a long-term deal.

“I don’t like MOUs because they don’t mean anything,” Trump said. “Either you are going to make a deal or you’re not.”

Lighthizer responded testily that MOUs were binding, but that he would never use the term again.

Reuters reported exclusively on Wednesday that the two sides were drafting the language for six MOUs covering the most difficult issues in the trade talks that would require structural economic change in China.

Negotiators have struggled this week to agree on specific language within those memorandums to address tough US demands, according to sources familiar with the talks. The six memorandums include cyber theft, intellectual property rights, services, agriculture and non-tariff barriers to trade, including subsidies.

An industry source briefed on the talks said both sides have narrowed differences on intellectual property rights, market access and narrowing a nearly $400 billion US trade deficit with China. But bigger differences remain on changes to China’s treatment of state-owned enterprises, subsidies, forced technology transfers and cyber theft of US trade secrets.

Lighthizer pushed back when questioned on forced technology transfers, saying the two sides made “a lot of progress” on the issue, but did not elaborate.

The US has said foreign firms in China are often coerced to transfer their technology to Chinese firms if they want to operate there. China denies this.

The US Chamber of Commerce on Friday urged the US government to ensure the deal was comprehensive and addressed core issues, rather than one based on more Chinese short-term purchases of goods.

China has pledged to increase purchases of agricultural produce, energy, semiconductors and industrial goods to reduce its trade surplus with the United States.

China committed to buying an additional 10 million tonnes of US soybeans on Friday, US Agriculture Secretary Sonny Perdue said on Twitter. China bought about 32 million tonnes of US soybeans in 2017. The commitments are a “show of good faith by the Chinese” and “indications of more good news to come,” Perdue wrote.

China was the top buyer of US soybeans before the trade war, but Beijing’s retaliatory tariffs on US soybeans slashed business that had been worth $12 billion annually.

US, China Haggle Over Toughest Issues in Trade War Talks

If the two sides fail to reach an agreement by March 1, US tariffs on $200 billion worth of Chinese imports are set to rise to 25% from 10%.

Washington: Top US and Chinese trade negotiators haggled on Thursday over the details of a set of agreements aimed at ending their trade war, just one week before a Washington-imposed deadline for a deal expires and triggers higher US tariffs.

Reuters reported exclusively on Wednesday that the two sides are starting to sketch out an agreement on structural issues, drafting language for six memorandums of understanding on proposed Chinese reforms.

If the two sides fail to reach an agreement by March 1, US tariffs on $200 billion worth of Chinese imports are set to rise to 25% from 10%. Tit-for-tat tariffs between the world’s two largest economic powers have disrupted international trade and slowed the global economy since the trade war started seven months ago.

Negotiators have struggled this week to overcome differences on specific language to address tough US demands for structural changes in China’s economy, two sources familiar with the talks said. The issues include an enforcement mechanism to ensure that China complies with any agreements.

“It’s not surprising that this week has been more challenging,” said an industry source familiar with the talks. “Once you move from putting together outlines to filling out the details, that is where things would naturally become more challenging.”

Chinese officials did not answer questions as they left the US Trade Representative’s office on Thursday evening after more than nine hours of talks on Thursday.

Trump to meet Chinese vice premier

The discussions began with a photo opportunity where US Trade Representative Robert Lighthizer and Chinese vice premier Liu He faced each other silently across a table in the Eisenhower Executive Office Building next door to the White House.

US President Donald Trump will meet with Liu at the Oval Office on Friday, the White House said late on Thursday. The two also met at the end of talks during Liu’s last visit to Washington in late January.

Trump, who has embraced an ‘America First’ policy as part of an effort to rebalance global trade, has said the March 1 deadline could be extended if enough progress is made.

Also Read: Global Economy Will Pay the Price of Escalating US-China Trade War

Sources familiar with the negotiations told Reuters the memorandums would cover forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.

The two sides remain far apart on demands by Trump’s administration for China to end practices on those issues that led Trump to start levying duties on Chinese imports in the first place.

Chinese President Xi Jinping would need to undertake difficult structural economic reforms to meet US demands. The US is offering no real concessions in return, other than to remove the tariff barriers Trump has imposed to force change from China.

Chinese Premier Xi Jinping and US President Donald Trump. Credit: Reuters

Pen to paper

One of Trump’s demands that is easier to fix for Beijing is to reduce the trade imbalance between the two nations. The US trade deficit with China reached a record $382 billion through the first eleven months of 2018.

The two sides have reached consensus on how to alleviate the trade imbalances, several Chinese government sources said. Washington and Beijing are looking at a 10-item list for that, including additional Chinese purchases of agricultural produce, energy and goods such as semiconductors.

US Agriculture Secretary Sonny Perdue called China’s pledges to purchase US agricultural produce premature.

“Those proposals are all contingent upon a grand deal,” he said on the sidelines of the US Department of Agriculture’s annual forum in Washington.

“The real issue is structural reforms regarding intellectual property, enforceability of those types of provisions.”

The US could quickly recover its lost agricultural markets in China if a deal is struck, he said.

Perdue has overseen $12 billion in federal aid to US farmers for losses they have sustained because of the trade war. China had all but halted purchases of US soybeans, which were the single biggest US agricultural export, worth around $12 billion in 2017.