China and the U.S. could restart negotiations, but progress expected to be slow
June 11, 2019 Category Foreign trade, Weekly
Even as China and the U.S. ratchet up the rhetoric against one other, their senior officials are quietly looking for opportunities to restart talks and end the trade war, the South China Morning Post reports. But the sources caution that progress is likely to be slow, noting that the situation today is very different from February when the Chinese seemed confident of signing a memorandum of understanding (MOU) before an unexpected intervention by U.S. President Donald Trump. Last week, Donald Trump said “a lot of interesting things are happening in our talks with China”, before going on to threaten that he could “raise tariffs on China on another USD300 billion, if necessary”.
Yi Gang, Governor of the People’s Bank of China (PBOC), told Bloomberg that China had “tremendous room” to adjust monetary policy for a prolonged trade war, as he held talks with U.S. Treasury Secretary Steven Mnuchin on the sidelines of the Group of 20 meeting of Finance Ministers in Japan. Analysts said more contradictory messages could be expected to be sent out in the coming weeks because both sides hoped to strengthen their hands while looking for opportunities to reopen talks. But government sources and observers contacted by the South China Morning Post generally were pessimistic about the chances of a deal being reached before Trump met his Chinese counterpart, Xi Jinping, at the G20 Summit in Osaka later this month.
Before the talks collapsed, China had agreed to cut its trade surplus with the U.S. to USD50 billion in five years and increase U.S. imports. But in return, it wanted Washington to ease its restrictions on sales of hi-tech products to China and to immediately remove the tariffs it had placed on USD200 billion of Chinese products. Washington, for its part, wanted to keep tariffs on USD50 billion worth of Chinese goods related to China’s industrial modernization strategy, “Made in China 2025”. These tariffs would be lifted only after China had made verifiable progress on its promises. China worried that if it had to increase imports by USD100 billion a year and the U.S. kept its hi-tech export restrictions in place, it would end up with little freedom of choice regarding what it could buy. This all shows that the U.S. and China still have a big gap to bridge to get close to ending the trade dispute.
Huawei Technologies is still struggling to limit the fall-out from the ban to acquire products and supplies that include U.S. technologies. German chipmaker Infineon said it is continuing most shipments to Huawei, given that the majority of products it delivers to the Chinese firm are not subject to U.S. export restrictions. Panasonic’s China branch also said it will maintain normal supplies to Huawei. Huawei bought USD6.3 billion worth of products including batteries, electronic material and components from Panasonic in 2018. The semiconductor firm TSMC also confirmed that its shipments to Huawei will not be affected by the U.S. government’s ban on Huawei’s access to U.S. technologies. But Facebook, WhatsApp and Instagram are no longer allowing pre-installation of their apps on new Huawei phones, though existing customers can still use the apps and receive updates. Future versions of Huawei phones, however, will not have access to the Google Playstore. Analysts expect a dramatic drop in Huawei smartphone sales outside China.
The White House’s acting budget chief, Russell Vought, has requested that some restrictions against Huawei sales be delayed for two years “to ensure the effective implementation of the prohibition without compromising desired security objectives”. The Pentagon’s 2020 spending bill, signed into law last year, had placed a broad ban on federal agencies and contractors using federal money to purchase Huawei products, citing national security concerns.
Employees of Huawei Technologies have had their rights restored as members of the Institute of Electrical and Electronics Engineers (IEEE), one of the world’s biggest technical professional organizations. This includes the right to review and edit articles for publication. The earlier restriction was hotly criticized in Chinese academia. This reversal marked a major turnaround amid a raging tech war between China and the U.S., analysts said.
Huawei has recently established a smart car solutions business unit. The company said it would not make cars, but focus on developing ICT technologies, enabling car manufacturers to build better smart vehicles. “As a leading provider of ICT products and solutions, Huawei needs to gear up its expansion into various industries, including the smart vehicle sector,” said Raymond Wang, Partner of global consultancy Roland Berger.
Meanwhile there are signs that Chinese authorities might also retaliate against U.S. companies in China by ramping up inspections and scrutiny of infringements of Chinese laws and regulations. The State Administration for Market Regulation has imposed a fine of CNY162.8 million on automaker Changan Ford for implementing vertical monopoly agreements. Since 2013, the company has restricted the minimum vehicle resale prices for downstream dealers in Chongqing, violating China’s anti-monopoly law, the Administration said. The company’s practices deprived the downstream dealers of pricing autonomy, excluded and restricted the competition within the brand and in effect weakened the competition among brands. The fine equals 4% of the firm’s 2018 sales in Chongqing. “Changan Ford respects the decision taken” by the regulator, the carmaker said in a statement, adding that it has “taken corrective action in its regional sales management together with its dealers”. Ford’s 2018 sales in China declined 36.9% to 752,243 units in a shrinking market, where overall sales declined 2.8% in the first annual contraction since 1992. Changan Ford sold 36,800 vehicles in the first quarter, down 71.8% from the same period last year.
Chinese authorities warned Chinese students of the pitfalls of studying in the U.S. and possible visa restrictions, which include an extended reviewing process, shortened validity period and an increased rejection rate. Chinese students contributed USD14 billion to the U.S. economy in 2017. China sends more students to the U.S. than any other nation, accounting for roughly one-third of the 1.1 million international students enrolled at U.S. universities in the 2017-18 academic year. In the past, there were times when the two countries ran into economic and trade disputes, but education cooperation remained strong.
Chinese authorities also warned tourists of thinking twice before visiting the U.S. U.S. law enforcement departments have been increasingly harassing Chinese nationals in the U.S. by questioning them as they enter or exit the country, as well as talking to them in their homes, Chen Xiongfeng, Deputy Director General of the Department of Consular Affairs of China’s Ministry of Foreign Affairs, said. China also has warned its companies operating in the United States they could face harassment from U.S. law enforcement agencies.
Meanwhile, the Global Times newspaper accused the United States in a commentary of “economic terrorism”. It wrote: “Global financial markets are facing a stark wake-up call that they need to unite to stand against acts of what can only be described as economic terrorism by a country which unilaterally imposes its will on others and pursues its own goals at the cost of the interests of others.” As an example the Global Times writes: ““The International Air Transport Association has estimated that the U.S.-China trade war and high fuel prices will wipe USD7.5 billion off expected airline profits in 2019. This is just the figure from the airline industry, which is enough to show the disastrous impact the U.S.-initiated economic terrorism has on the globe.”
U.S. Treasury Secretary Steven Mnuchin accused China of allowing the value of its currency to slide in a bid to offset the impact of Washington’s trade tariffs on the cost of its goods to American consumers.“It’s not coincidental in my mind that the currency has moved from approximately CNY6.30 to CNY6.90,” he said on the sidelines of the G20 finance leaders’ meeting in Japan, adding that “the decision not to intervene after intervening for a very long period of time may lead the market to view that there is a desire to let the currency weaken.” In its twice-yearly report on foreign exchange policies, the U.S. Treasury said it had “significant” concerns about China’s practices, though it once again refrained from designating the country a currency manipulator.
U.S. President Donald Trump has no qualms about introducing more tariffs on Chinese imports if no progress is made on the stalled negotiations when he meets Chinese President Xi Jinping later this month, Mnuchin told CNBC. The U.S. has now put the ball back in China’s camp, trying to force it to accept U.S. negotiating terms, which China is unlikely to do, analysts said.
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