After ceasefire in U.S.-China trade war, hard work of negotiations begins
December 11, 2018 Category Foreign trade, Weekly
China and the United States took a big step forward in relations to reach a truce in the trade war, U.S. President Donald Trump said, as China prepared to send a big delegation to the U.S. for further talks after President Xi Jinping and Donald Trump had dinner together in Buenos Aires on December 1, when they agreed to hold off on imposing new tariffs for 90 days. “Relations with China have taken a BIG leap forward! Very good things will happen. We are dealing from great strength, but China likewise has much to gain if and when a deal is completed. Level the field!” Trump said in a tweet. Trump also said U.S. farmers would benefit from China’s agreement to buy more American agricultural products, and Beijing had agreed to “reduce and remove” tariffs on U.S. cars. Beijing raised tariffs on American cars to 40% over the summer as the tit-for-tat trade war escalated. A source familiar with the trade talks said China was expected to send about 30 officials to Washington for discussions, but it was not known who would be in the delegation. U.S. Trade Representative Robert Lighthizer would be in charge of negotiations with China over the next 90 days. However, President Trump warned that if the deal does not happen, “remember, I am a Tariff Man”. There is still some confusion in the White House when the 90-day period would start, on December 1 or January 1.
“As the next step, both sides will speed up negotiations based on the consensus reached between the two countries’ leaders,” Chinese Foreign Ministry Spokesman Geng Shuang said. The two sides have three months to tackle their differences over forced technology transfer, intellectual property protection, non-tariff barriers and cyber intrusions. If there is no progress, the U.S. will go ahead with increases in duties that it had threatened to apply from January 1. Jake Parker, U.S.-China Business Council Vice President for China Operations, said the ceasefire delayed further escalation “but this is where the hard work begins”. “It is unreasonable to assume that all challenges in the relationship can be resolved in 90 days. Both sides should instead aim for substantive, measurable and commercially meaningful outcomes and a long-term engagement framework,” Parker said. U.S. Treasury Secretary Steven Mnuchin also warned that Beijing should avoid “soft commitments” in talks. “There is a 100% unanimous view on our economic team that this needs to be a real agreement,” Mnuchin was quoted as saying. He told CNBC that China had made trade commitments worth around USD1.2 trillion, but stressed that the details still needed to be negotiated.
Chinese President Xi Jinping “made the pitch himself” during the dinner with Donald Trump that ended with a truce in the trade war with the U.S., according to White House Economic Adviser Larry Kudlow, adding that it was unusual to see government leaders taking such a hands-on role in this type of negotiation. “We’ve never seen that hands-on participation by President Xi before. In fact, that dinner was quite remarkable,” Kudlow said. “President Xi engaged in a level of detail – you could even say he was selling this, which was, in my opinion, quite unusual for the head of state. Guys like me are supposed to know the details. He did. He made the pitch himself. I was impressed with that and I felt that bolstered the Chinese commitment. I may be wrong, but I believe it did,” Kudlow said. But there remains much skepticism as to what extent Beijing will deliver by the end of the 90-days, as the grace period is nowhere near long enough to allow the two sides to bridge the large differences between their positions on key issues.
Many companies located in the Pearl River Delta who were considering to relocate their operations to Vietnam if the tariffs would be raised from 10% to 25% have put their plans on hold. Xie Jun, a furniture exporter based in Zhejiang province, said the cost of building a new factory in Vietnam had soared in the past few months and become unaffordable to many. “So the trade war truce is really a relief for us, and we hope the government can really end the trade war next year,” Xie said. While there are no official statistics, this year some 5,000 to 6,000 factories based in mainland China – owned by Hong Kong or Taiwan investors, or by private mainland investors – have sent their people to look into moving production to Vietnam to guard against the rise in tariffs on made-in-China exports, analysts said according to the South China Morning Post. The monthly rent for existing factory buildings in popular industrial parks near Ho Chi Minh City has risen to USD4 per square meter from USD3 last year, according to Vincy Nguyen, Greater China sales manager of BW Industrial Development, which builds and manages industrial parks.
China has begun preparing to restart imports of U.S. soybeans and liquefied natural gas (LNG), as it agreed to buy some U.S. products “immediately”, but it is not known whether the preparations meant China would cut the retaliatory tariffs it imposed on those products, or when the purchases would happen.
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