U.S. Finance Secretary Mnuchin (left) and Commerce Secretary Wilbur Ross (right)

No breakthrough was reported after two days of trade talks between U.S. and Chinese negotiators who were trying to prevent the imposition of import tariffs by both sides. The negotiators only agreed on some minor issues and to hold further talks. A Chinese government official who was briefed on the trade talks said they did not go as well as described by official news agency Xinhua, which called them “candid, efficient and constructive”. “Candid means there was a heated exchange. Efficient means the talks were very short. And constructive means there’s still a huge gulf between the two sides,” said the government source as reported by the South China Morning Post.

The seven-member high-level U.S. delegation included Finance Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer, White House Trade Adviser Peter Navarro, and Economic Adviser Larry Kudlow. The Chinese team was led by Vice Premier Liu He. Following the talks, the U.S. delegation left earlier than expected without meeting President Xi Jinping or Vice President Wang Qishan.

The U.S. sees the current trade relationship with China as “significantly imbalanced”, and demanded China to reduce the trade deficit by USD200 billion over the next two years an end “improper tariffs” on American exports. China must immediately cease giving out market-distorting subsidies and other types of government support to industries under the Made in China 2025 plan. Government-sponsored cyber-enabled intellectual property theft and snooping on confidential information must be stopped. China must give fair and non-discriminatory market access to U.S. investors. The U.S. wants China to withdraw its World Trade Organization (WTO) complaints regarding the designation of China as a non-market economy. The U.S. also demanded that China reduce its tariffs and non-tariff barriers on all products in non-critical sectors to levels no higher than the corresponding U.S. tariffs on Chinese goods.

Beijing’s negotiators have demanded greater access to the U.S. market and fewer restrictions on Chinese companies. China wants the U.S. to stop its intellectual property infringement investigation under section 301 of the 1974 Trade Act and scrap the plan to impose 25% tariffs on Chinese products announced on April 3. The U.S. must remove restrictions on hi-tech exports to China, including on integrated circuits. China also wants the U.S. to give it the same treatment as other nations when conducting security assessments on businesses and stop imposing new investment restrictions. China said it will further open up the free-trade zone of Hainan province, increase imports of American films and reduce tariffs on U.S. cars, but added those measures were not a concession to the U.S. but taken in the national interest of China.

China and the US have reached some agreements, but no further details have been released. Xinhua News Agency reported that both sides admit that huge differences still remain on some issues, and that they will continue to seek further progress. Prior to the negotiations, Chinese officials vowed to not bow to threats, nor accept any preconditions for negotiations.

Before leaving for China, Commerce Secretary Wilbur Ross had blamed “evil practices” for America’s record trade deficit with China. “President Trump is of the view that it’s now time for action. Our trade deficit is too big, too continuing, too chronic and too inspired by evil practices,” Ross said in an interview with CNBC.

The U.S. Chamber of Commerce reiterated its call for caution. “We are deeply concerned that the proposed tariffs list and escalating tariff threats from the administration will not effectively advance our shared goal of changing these harmful Chinese practices,” President Thomas Donohue said in Washington. “We need the administration instead to work collectively with U.S. industry, Congress and our trading partners to adequately address China’s unfair trade practices in ways that maximize the likelihood of real, enforceable solutions – and without inflicting collateral damage on businesses and consumers,” Donohue added.

The tariffs on USD50 billion in Chinese imports that U.S. President Donald Trump has proposed, plus retaliatory duties by China, would reduce U.S. gross domestic product (GDP) by USD2.9 billion and cost almost 134,000 U.S. jobs, according to a study commissioned by the Consumer Technology Association and the National Retail Federation, which oppose the tariffs. That includes more than 67,000 jobs in agriculture.

The most probable scenario has the U.S. imposing USD50 billion tariffs with promised Chinese retaliation, according to the study. Under that scenario, some sectors, including machinery and electronics manufacturing, would add jobs as reduced imports bolster U.S. production, the study found. But for every job gained, more than four would be lost during the first years after tariffs were imposed as higher prices reduce consumer spending and farmers in particular are hammered by Chinese duties, the study said. The Retail Federation, the Consumer Technology Association and other trade groups have been working together and separately to lobby the administration to strike a deal with China that avoids tariffs, and otherwise to exclude specific products from the list.

The Office of the U.S. Trade Representative is to hold a hearing on May 15 on the list of more than 1,300 Chinese products slated to be hit with punitive tariffs. Meanwhile, the U.S.-China trade dispute is escalating beyond trade and investment.The U.S. Defense Department last week banned the sale of products by Chinese telecom equipment makers ZTE and Huawei on American military bases around the world. President Trump is also considering banning the sale of Chinese telecom equipment in the U.S. based on national security concerns. Huawei and ZTE’s products make up less than 1% each of the U.S. mobile and fixed telecoms equipment markets, according to Dell’Oro Group.