Will the G20 Buenos Aires talks and dinner lead to a truce in the U.S.-China trade war?
November 27, 2018 Category Foreign trade, Weekly
All eyes are now on Buenos Aires, where on November 30 and December 1 the G20 Summit will take place and Presidents Donald Trump and Xi Jinping are expected to hold talks and have dinner. In small signs of goodwill, China has allowed a Hong Kong port call by the U.S. aircraft carrier Ronald Reagan and White House Trade Policy Adviser Peter Navarro – famous for his hawkish points of view on China – has not been invited to the dinner, where each President is expected to be accompanied by six aides. White House Chief Economic Adviser Larry Kudlow told Fox Business News that Trump was trying to “inject a note of optimism” into trade talks with China, adding there were “very detailed communications” between China and the U.S. taking place at all levels of government.
Trump has significantly toned down his rhetoric about China and trade since late September, when the administration imposed 10% tariffs on USD200 billion worth of Chinese imports. From July 6, when Washington slapped the first round of duties on Chinese goods, to the most recent tariff announcement on September 18, Trump tweeted about China 20 times, trade 42 times and tariffs 21 times. Since then, Trump has only mentioned China five times – the latest on November 1, when he said he had “a long and very good conversation” with Xi on many subjects. Meanwhile, his administration is divided between the hardline hawks like Navarro and Lighthizer seeking maximum concessions from China versus pragmatists like Kudlow and Mnuchin who are more willing to seek a compromise – and that will make it more difficult for Trump and Xi to reach any deal.
Meanwhile, the Office of the U.S. Trade Representative published a 53-page report with updated information about the Section 301 investigation of China’s technology and innovation-related policies and practices. It mentions the USD2 billion acquisition of a 45% stake in California-based electric car maker Faraday Future by Evergrande Health, the Hong Kong-listed subsidiary of China’s largest property company the Evergrande Real Estate Group, as an example of how Beijing makes use of outbound investments to obtain advanced technologies favored by state industrial plans. The report also accused China of “conducting and supporting cyber-enabled theft” for gaining access to intellectual property and said the Chinese government has created and supports a web of entities with presence in Silicon Valley and other U.S. technology centers to invest in hi-tech American start-ups and other investment activities to further the industrial policy goals of the Chinese government. “This update shows that China has not fundamentally altered its unfair, unreasonable, and market-distorting practices that were the subject of the March 2018 report on our Section 301 investigation,” U.S. Trade Representative Robert Lighthizer said.
“China is deeply concerned with the new accusations, and urges the U.S. side to stop making statements or moves that are destructive to bilateral economic and trade ties,” Ministry of Commerce Spokesman Gao Feng said. “By putting domestic laws above international laws, the United States has broken its commitment to all members of the World Trade Organization and has disregarded and damaged multilateral rules of the World Trade Organization,” he added.
A threat by Kevin Hassett, Chairman of Donald Trump’s Council of Economic Advisers to evict China from the World Trade Organization was dismissed as “talking nonsense’’. “The WTO is a multilateral organization and is not owned by the United States,” Foreign Ministry Spokesman Geng Shuang said, noting that the comment “fully exposed Washington’s bullying and the mentality of self-conceit”.
Some analysts expect the Chinese government to announce more reform and opening up policies at a gathering in December to celebrate the 40th anniversary of the country’s reform and opening up. Those policies could move China close to a reciprocal trading environment and help end the trade war. While Beijing has agreed to buy more U.S. goods to reduce its trade surplus, it has refrained from dramatically overhauling its industrial policies as Washington has requested. In a bid to reach a ceasefire in the trade war, China has offered to buy more natural gas from the U.S. and improve protection of intellectual property rights.
The U.S. is trying to “decouple” from China and retract its companies from the Chinese supply chain. But China is becoming less reliant on the U.S. for its economic health, and more intertwined with Asia. Today, bilateral trade with the U.S. accounts for 14% of China’s trade flows. The U.S. share of Chinese exports in trade in value-added terms actually declined from about 30% in 2002, just after China joined the World Trade Organization (WTO), to 20% in 2011. Since the global financial crisis, China has both overtaken the U.S. as the world’s largest trading nation and seen its gross domestic product growth become less dependent on exports. China’s trade-to-GDP ratio is 38%. By comparison, Vietnam’s trade as a percentage of GDP is over 200%. This suggests China is less susceptible to the downsides of a bilateral trade war, the South China Morning Post reports.
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