China taking no new initiatives to end trade war
July 23, 2019 Category Foreign trade, Weekly
China’s Minister of Commerce Zhong Shan
According to the latest developments, it seems China is in no hurry to end the trade war with the U.S. and might be waiting for the U.S. presidential elections next year to see who will be the next U.S. President. The U.S. expects China to announce significant purchases of American agriculture products for the negotiations to resume. China must uphold “the spirit of struggle” in defending national interests in its current trade war with the U.S., Commerce Minister Zhong Shan said. He made clear that the U.S. side should be held solely accountable for the trade conflict that has become a drag on the global economy. Zhong Shan recently joined China’s negotiating team led by Vice Premier Liu He. Zhang Lifan, a Beijing-based commentator, said that Zhong’s comments indicated China was preparing for a protracted trade war with the U.S. The remarks were made as officials from the two nations prepared for further face-to-face talks next week. As both parties agreed to restart the negotiations they have yet to agree on which version of the text will be used.
Scott Kennedy, Economist with Washington-based think tank the Center for Strategic and International Studies, said Zhong’s greater prominence meant China had lost interest in addressing U.S. concerns in the talks. “Those hoping for a deal that stabilizes the relationship should give up such illusions. It won’t be coming any time soon.” “As for the so-called claims by the U.S. that China is eager to reach an agreement with the U.S. because of the economic slowdown, this is completely misleading,” Foreign Ministry Spokesman Geng Shuang said. “The conclusion of an economic and trade agreement is by no means of unilateral appeal to the Chinese side. The U.S. side also has this demand,” given that people from “all walks of life” in the U.S. are opposed to paying for U.S. tariffs on Chinese imports. “I would like to once again call on the U.S. to work together with China, to move in the same direction, and to reach a mutually beneficial and win-win agreement on the basis of mutual respect and equal treatment.”
The trade war has also dented the friendship between Presidents Trump and Xi. “I used to say he was a good friend of mine,” Trump said at a White House event. “We’re probably not quite as close now. But I have to be for our country. He’s for China and I’m for USA, and that’s the way it’s got to be.”
The Global Times newspaper accused U.S. President Trump of exaggerating China’s economic plight after GDP growth fell to 6.2% in the second quarter. It said Washington was increasing psychological pressure on China to force it to agree to a trade deal and end the trade war on Washington’s terms. The Global Times pointed out that China’s second quarter growth rate was more than twice that of the United States.
U.S. data shows that tariff-hit exports to China plunged by 38% after three rounds of tariffs. U.S. farmers were hit the hardest, with soybean exports to China grinding to a halt last year. The other victim of the trade war is the U.S. consumer. According to recent research by the Federal Reserve Bank of New York, the tariffs imposed last year had reduced U.S. household incomes at a rate of USD1.4 billion per month. An updated analysis predicts that the latest tariff hike on USD200 billion of Chinese goods would cost the average U.S. family an extra USD831 annually due to higher prices and loss of economic efficiency.
The United states did not comply with a World Trade Organization (WTO) ruling and could face Chinese sanctions if it does not remove certain tariffs that break WTO rules, the WTO’s appeals judges said in a ruling. China went to the WTO in 2012 to challenge U.S. anti-subsidy tariffs on Chinese exports including solar panels, wind towers, steel cylinders and aluminum extrusions, exports valued at USD7.3 billion at the time. The ruling said the United States must accept Chinese prices to measure subsidies. China’s Commerce Ministry said the WTO appellate report proves the U.S. “repeatedly abused trade remedy measures, which seriously damaged the fairness and impartiality of the international trade environment.” Under President Donald Trump, the U.S. has been blocking the process to appoint or reappoint members of the WTO’s Appellate Body, which is effectively the top court for world trade. The Appellate Body normally has seven members and needs three to consider each case, but from December 11 it will have only one judge left, causing at least a temporary suspension.
As part of its goal to make the economy more efficient, Chinese authorities unveiled a new reform plan to make it easier for companies, including zombie state-owned enterprises, to be closed down. The intention is to better allocate resources to unleash the economy’s growth potential, which is under pressure from the trade war with the United States, by lowering the cost of closing down insolvent firms. The government “must fully employ the decisive role of the market in resource allocation, standardize market competition, reduce market distortions and promote the flow of components and resources to the most efficient market entities,” the joint circular from 13 major ministries said. The plan specifically forbids central government agencies and local governments from providing subsidies or loans to prop up the operation of state-owned enterprises (SOEs) that would not be financially viable without such help, which are known as zombie enterprises. However, the final decision on whether a firm is solvent or not is usually in the hands of local officials, who often are reluctant to act given the importance of such firms to the local economy.
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