Trump-Xi meeting in Osaka finally confirmed
June 18, 2019 Category Foreign trade, Weekly
Presidents Donald Trump and Xi Jinping at their last meeting in Buenos Aires in December 2018
U.S. President Donald Trump and his Chinese counterpart Xi Jinping finally agreed to meet on June 29 on the sidelines of the G20 Summit in Osaka, Japan. It will provide an opportunity for both leaders to try to end or slow down the trade war between the two countries. The two leaders confirmed the meeting after a telephone conversation, made at the request of Donald Trump. The teams of both countries would already start talks prior to the meeting of the Presidents. Besides the trade war, Huawei, the principles on which the bilateral relationship should be based, and North Korea are expected to be also on the agenda. The most likely outcome on trade is expected to be similar to the one reached in Buenos Aires in December last year, when Trump and Xi agreed to a temporary truce while trade negotiators try to hammer out a deal. “The notion that we’ll get a comprehensive agreement any time before the end of this year is doubtful to me. I think we’ll see some market calming statement and a return to negotiations. So you’ll see something, I would assume, something similar to Buenos Aires,” said Charles Freeman, Senior Vice President for Asia at the U.S. Chamber of Commerce.
China has signaled its intention to not “weaponize” the yuan’s exchange rate as a message of good faith ahead of next week’s meeting, according to Stephen Innes, Managing Partner at Vanguard Markets Singapore. To prop up the yuan, the People’s Bank of China (PBOC) will sell CNY20 billion of one-month bonds and CNY10 billion of six-month bonds in Hong Kong on June 26. The U.S. had previously demanded China to limit the yuan’s depreciation.
Prior to confirmation of the meeting Trump had told CNBC that he would place tariffs on the remaining USD300 billion of currently untaxed Chinese imports should Beijing turn down the face-to-face meeting with Xi. Later he said that “it doesn’t matter if Xi Jinping agrees to meeting at G20 because U.S. is ‘collecting billions in tariffs’ from China.” Treasury Secretary Steven Mnuchin said in an interview with CNBC that President Trump would be “perfectly happy” to impose the new tariffs if China did not wish to resume negotiations. U.S. Commerce Secretary Wilbur Ross downplayed the likelihood of resolving the dispute at the G20 summit, saying it would not be “a place where anyone makes a definitive deal.” A further tranche of tariffs would bring the total value of Chinese goods subject to punitive taxes of 25% to around USD550 billion. George Magnus, Associate at Oxford University’s China Center, said that the anticipation surrounding a Trump-Xi summit in Osaka is “a mark of how far the U.S.-China relationship has deteriorated”.
The latest round of trade talks between teams led by Chinese Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer took place on May 10 in Washington. Since then, both countries have imposed additional tariffs on imports and hostile rhetoric has increased. John Quelch, Dean of the Miami Business School at the University of Miami, said a face-to-face meeting between Trump and Xi “is essential, even if nothing is resolved”. “Global stock markets want assurance that communication lines remain open at the highest level between the world’s two most powerful economies,” said Quelch, who has also worked at the China Europe International Business School in Shanghai.
Hostility has also spread to the technology front after the U.S. placed Huawei on a trade blacklist, effectively banning U.S. firms from supplying the Chinese telecommunications equipment maker with hardware and software. China responded by announcing that it would launch its own “unreliable entity list” to target foreign firms that take action that harms Chinese firms for non-commercial reasons, the South China Morning Post reports.
U.S. President Donald Trump will probably want to reach a deal with China in the trade war by next year in order to avoid hurting the American economy before the 2020 elections, according to Sean Taylor, Chief Investment Officer for Asia Pacific at DWS Group, Deutsche Bank’s asset management arm. Trump’s threat to put 25% tariffs on USD300 billion of Chinese-made products later this year could hurt the U.S. economy by either forcing consumers to pay higher prices or squeezing corporate margins, he said. “If more of the tariffs start to impact the economy and the asset markets, that’s not going to be great for him going into the election,” according to Sean Taylor. Morgan Stanley said in a research note that the global economy could be in a recession within the next three quarters if the U.S. puts tariffs on nearly all Chinese-made products and Beijing responds with its own countermeasures.
China said that advocating the “decoupling” of the Chinese and U.S. economies by “a handful of people in the U.S.”, is extremely dangerous and irresponsible. Foreign Ministry Spokesperson Geng Shuang said the handful of people were sticking to a Cold War mentality and zero-sum game philosophy. Such a view is against the essence of China-U.S. relations featuring cooperation and win-win results, ignores public opinion on friendly and close exchanges between the two countries, goes against the trend of the times and is bound to fail, Geng added. He said a forced decoupling of China and the United States would inevitably disrupt the world economy and harm everyone.
Meanwhile the technology war between the U.S. and China continues. Huawei Technologies has told Verizon Communications that it should pay licensing fees for more than 230 of the Chinese telecoms equipment maker’s patents and in aggregate is seeking more than USD1 billion. The patents in question range from core network equipment and wireline infrastructure to internet-of-things (IoT) technology.
May’s escalation in trade tensions led to a sharp drop in the growth of American investment in China. According to the Chinese Ministry of Commerce (MOFCOM), U.S. investment in China grew 7.5% between January and May, year-on-year, a much slower pace than the 24.3% recorded between January and April. The rate also was significantly lower than the 16.3% growth posted for the first five months of 2018. The U.S. fell to sixth largest foreign investor in China in April from third largest in March. The trade war has caused U.S. exports to China in dollar terms for the January to May period to fall by 29.6% from a year earlier. A MOFCOM Spokesman told a press conference in Beijing that “there will be no winner in the trade war, which could cause a recession in the United States and global economies.”
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