Top trade negotiators from the U.S. and China spoke by phone, after an agreement to resume negotiations by Presidents Donald Trump and Xi Jinping at the Group of 20 summit in Osaka in late June, but so far no new date has been set for a resumption of face-to-face talks. White House Economic Adviser Larry Kudlow said the phone conversation was “constructive”, but warned that negotiations would be tough. The United States will allow American companies to sell technology to blacklisted  Huawei where there is no threat to U.S. national security, but China is expected “to move immediately, quickly, while the talks are going on, on promised agricultural purchases, he added.

 At the meeting on the sidelines of the G20 summit in Osaka, Trump pushed for a Chinese commitment to make large-scale purchases of U.S. agricultural products, but Chinese President Xi Jinping made no specific commitment during the meeting. Agricultural products, such as soybeans, are a key battlefield in the trade war. China has traditionally been a large buyer of U.S. soybeans and the trade war has damaged the trade. Moreover, even if China significantly boosted its purchases of U.S. soybeans and corn, the amount would only reduce the trade deficit marginally. China has not yet resumed buying additional U.S. agricultural products, and Chinese media warned that China would not buy more American products if the U.S. “flip-flopped” on its promises.

The U.S. administration announced it would exempt 110 Chinese products, including medical equipment and electronic devices, from a 25% tariff it imposed on USD34 billion worth of Chinese goods in July 2018. But this is still far from what Chinese officials have demanded – that all additional U.S. tariffs on Chinese goods must be lifted and Huawei must be removed from the blacklist – Chinese analysts pointed out.

Huawei would remain on the U.S. Entity List but U.S. companies would receive licenses from the U.S. government to sell certain products Huawei. But the Chinese company said that it has yet to see any benefit from the U.S. government’s promise to relax restrictions on it and called for a direct removal of the company from a security blacklist. In mid-October, the U.S. Commerce Department plans to issue regulations aimed at safeguarding the U.S. telecom supply chain. The Chinese side publicly named three “bottom lines” on which it has no intention of giving in: the U.S. should lift all punitive duties on Chinese imports; China’s purchases of U.S. goods must be decided by real Chinese domestic demand; and the wording of a deal should respect China’s sovereignty – that is, the U.S. should not demand that every single item in the deal be codified into Chinese law, nor should it demand a unilateral enforcement mechanism.

Chinese Vice President Wang Qishan has said Beijing should remain committed to economic globalization despite the challenges posed by the trade war with the United States. “China’s development can’t be separated from the world, and the world’s development cannot be separated from China. Major nations have to shoulder more responsibility and make greater contributions to the stability and peace of the world,” he said. “They should promote common security through seeking common interest, and we oppose the practice of protectionism in the name of national security,” he added.

Meanwhile, the Trump administration criticized a telecom project implemented by ZTE in Argentina. “U.S. words and deeds are totally irrational and irresponsible,” said Geng Shuang, Chinese Foreign Ministry Spokesperson about Washington’s “concern” that China was “exploiting data collected by surveillance systems” in other countries. The U.S. uses video surveillance systems and so could Argentina. It should not be politicized by the U.S. with ulterior motives, he added. Chinese companies cooperate with countries like Argentina to help them improve public security and urban management and such moves are welcomed and recognized by local society, Geng said. In March, ZTE signed a nearly USD30 million contract to install monitoring devices with Jujuy, a northern province in Argentina, which has crime rates slightly above the national average. The U.S. warnings for such a low-profile project show its relentless throwing of mud at Chinese technologies amid the China-U.S. tech race, Bai Ming, Deputy Director of the Ministry of Commerce’s International Market Research Institute said. 

BlackRock, the world’s largest asset manager, downgraded emerging market equities linked to China for the second half of the year, saying markets were “overly optimistic” about China’s ability to boost its economic growth amid the trade war with the United States. The firm, which manages more than USD6.5 trillion in assets, said it now sees “trade and geopolitical frictions as the principal driver of the global economy and markets” and expects China’s economy to experience “a lull” from the effect of U.S. tariffs. As recently as a month ago, New York-based BlackRock had a positive view of emerging market equities, saying “economic reforms and policy stimulus” could support the stocks. It had argued that “improved consumption and economic activity from Chinese stimulus could help offset any trade-related weakness”. But the firm has now changed its viewpoint largely because the year-old U.S.-China trade war has become the single most important factor in the global economy and marketplace, it said in its Midyear 2019 Global Investment Outlook. The U.S. and China are now locked in a strategic competition that is structural and persistent, BlackRock’s researchers said.

Former U..S. Ambassador to China Max Baucus has said the tariff war had become the “new normal” in the countries’ relationship despite the resumption of trade talks. He said that it would be difficult for the world’s two largest economies to cancel their existing tariffs on each other’s products. “We have a new normal that the tariffs will continue in the indefinite future,” Baucus told the South China Morning Post. “It’s very hard to roll back tariffs once they’re imposed. Both countries’ tariffs that exist today will continue for some time. China will also have to wait to see if the U.S. actually allows U.S. hi-tech sales to Huawei. Consequently, further progress will be difficult. The status quo is likely for the rest of the year,” Baucus said.

David Lampton, Professor Emeritus of China Studies at the Johns Hopkins School of Advanced International Studies, agreed that the existing tariffs would not easily be removed. “Trump believes in tariffs. Therefore he will be very reluctant to give up tariffs unless he sees a big gain, which he can sell for his election,” Lampton added.

Zeng Peiyan, who was Vice Premier from 2003 to 2008, said the U.S. should not complain about its trade deficit with China because it was a result of the U.S. dollar’s role as an international currency, domestic consumption in America and its industrial structure. Zeng, who is now Chairman of the China Center for International Economic Exchanges, said it was Washington that had continued to escalate trade frictions with Beijing and it had seriously undermined the growth prospects of the two countries and the world. Zeng said if Washington would  ease the curbs on technology exports to China to the level of restrictions placed on France, it would essentially cut down the trade deficit with China by 35%.

Meanwhile, China’s DJI Technologies, the world’s largest manufacturer of drones, announced that its high-security drones, intended for government use and known as Government Edition, had received clearance from the U.S. authorities. The approval was a rare example of a Chinese technology company winning U.S. government clearance in a climate recently defined by suspicion and restrictions. In May, the U.S. Department of Homeland Security alerted U.S. companies to “be aware” of whether their “unmanned aerial systems” (UAS) data was “being stored by the vendor or other third parties. During 15 months of testing of the two models, U.S. authorities found no indication that data was being transmitted outside the system.

Another issue that could complicate trade negotiations is the sale of U.S. arms to Taiwan. China said it will place sanctions on U.S. companies involved in the latest planned military sale to Taiwan worth an estimated USD2.2 billion, which it said has impaired its sovereignty and national security. The U.S. State Department has already approved the sale. China’s Foreign Minister Wang Yi warned the U.S. against attempts to create new trouble for Sino-U.S. ties. The Chinese sanctions could also block the targeted U.S. companies’ non-military products from entering Chinese markets. The firms include Raytheon, that provides Stinger missiles, General Dynamics, that provides M1A2T tanks, and BAE and Oshkosh that provide tank equipment. China would not only not buy products from these companies, but also freeze the industrial chains related to these companies, and stop providing certain base materials, including rare earths, which are indispensable in making advanced weapons and equipment.