The Xijiao State Guest House in Shanghai

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin resumed face-to-face meetings with China’s Vice Premier Liu He on July 30 and 31 at the Xijiao State Guest House in Shanghai. The meeting is the first face-to-face discussion since negotiations collapsed in May. The meeting place has symbolic significance as former U.S. President Richard Nixon stayed at the guesthouse when he visited China in 1972, and it was there that he finalized the text of the Shanghai Communique – a key document for Beijing and Washington to establish diplomatic relations in 1979.

In a sign of progress, Chinese companies are expected to buy more agricultural products – including soybeans, cotton, pork, sorghum, wheat, corn, dairy products and other foodstuffs – from the United States after millions of tons of U.S. soybeans have been shipped out to China. The soybean shipment was the first major purchase of U.S. agricultural products by Chinese enterprises after a June meeting of the two heads of state in Osaka, Japan. Meanwhile, the U.S. administration has announced the exemption of additional tariffs imposed on 110 items of Chinese industrial products and expressed its willingness to prompt U.S. businesses to continue providing supplies to Chinese enterprises.

On the other hand, the U.S. is trying to have the developing-nation status of China at the World Trade Organization (WTO) changed, to which China is fervently opposed. Wei Jianguo, former Vice Minister of Commerce, said that it is an indisputable fact that China has yet to become a developed country, although it has been striving to achieve this status. China’s population is more than four times that of the U.S., but per capita income of the U.S. is 6.38 times greater than that of China in nominal terms. The U.S. said that if it doesn’t get the changes it wants at the WTO, it will not apply developing country status to countries it thinks no longer qualify for special treatment. In a memo, President Trump directed U.S. Trade Representative Robert Lighthizer to “use all available means” to change the WTO rules that allow countries to claim developing-country status when economic data does not justify the special treatment.

In an update to its half-yearly World Economic Outlook, the IMF said the trade war was hurting China more than the U.S. The Fund’s country-by-country breakdown upgraded its forecast of U.S. growth this year from 2.3% to 2.6% but downgraded China’s from 6.3% to 6.2%. “In China, the negative effects of escalating tariffs and weakening external demand have added pressure to an economy already in the midst of a structural slowdown and needed regulatory strengthening to rein in high dependence on debt,” the IMF said.

Amid the China-U.S. trade war, momentum is building for the Regional Comprehensive Economic Partnership (RCEP) – a free-trade agreement between China, the 10 ASEAN states, Australia, India, Japan, New Zealand and South Korea. The latest round of RCEP negotiations is ongoing in Zhengzhou, Henan province, to be followed by a ministerial meeting in Beijing in early August. Discussions on the creation of the RCEP agreement have gathered momentum since 2012 and, although progress has been slow – with 26 rounds of negotiations so far – the heads of the member countries pledged in November that they would finalize the trade agreement this year. It is the first time that China hosted talks on the RCEP trade pact.

China, which is soon expected to publish a list of “unreliable” foreign entities deemed to have damaged the interests of local firms, said it suspects that FedEx violated the law by not making shipments of goods from telecom firm Huawei to recipients. Relevant Chinese state departments found that FedEx’s previous statement on the incident, which said that the re-routing of Huawei packages to the U.S. was the result of an “operational error”, was inconsistent with the facts. In addition, regulators found that FedEx had held back more than 100 Huawei-related shipments. A Hong Kong-based FedEx media representative said a statement would be released in due course.

China’s exports as a percentage of gross domestic product (GDP) stood at 19.51% in 2018, down from a peak of 36.04% in 2006. Overall trade between China and the U.S. has been declining, and in the first half of 2019, China’s exports to the U.S. fell by 8.1% to USD199.4 billion, while imports from the U.S. dropped by 29.9% to USD58.9 billion. Meanwhile, China has been reducing its U.S. dollar holdings. China has for the first time disclosed that by the end of 2014, U.S. dollar assets accounted for 58% of its total foreign exchange reserves, down from 79% in 2005, and that its foreign exchange reserves generated an annual average return of 3.68% from 2005 to 2014, according to State Administration of Foreign Exchange (SAFE).