Trade war fears ebb as U.S., China agree to continue talks

Image: FILE PHOTO: Containers are seen at the Yangshan Deep Water Port in Shanghai, China April 24, 2018. REUTERS/Aly Song

By Ben Blanchard, Michael Martina and Susan Heavey

BEIJING/WASHINGTON (Reuters) – Washington and Beijing both claimed victory on Monday as the world’s two largest economies stepped back from the brink of a global trade war and agreed to hold further talks to boost U.S. exports to China.

Over the weekend, the two sides pledged to keep talking about how China could import more energy and agricultural commodities from the United States so as to narrow the $335 billion annual U.S. goods and services trade deficit with China, although details and a firm timeline were thin.

The biggest immediate beneficiary appeared to be China, which won a reprieve from threatened tariffs on $50 billion of its exports to the United States as well as a lifeline for ZTE Corp , a major company whose existence had been threatened by U.S. sanctions.

The United States meanwhile appeared to have won promises of more imports by China, although there were no specifics.

Economists at Morgan Stanley estimated exports of U.S. agricultural products, primarily beef, and energy, mostly liquified natural gas, could add between $60 billion and $90 billion to sales to China over a period of years. That is far less than the $200 billion reduction in China’s trade surplus that President Donald Trump had demanded at the start of talks.

“China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products – would be one of the best things to happen to our farmers in many years!” Trump wrote on Twitter on Monday.

China’s government praised the cooling of trade tensions with the United States, saying agreement was in both nations’ interests while state media trumpeted what it saw as Beijing’s refusal to surrender to U.S. economic threats.

There were, however, more questions for the Trump administration, which stands accused by critics of selling out on plans to stop the theft of U.S. companies’ trade secrets in exchange for a quick deal to reduce the U.S. trade deficit.

Questions also remained over the administration’s handling of ZTE, a Chinese company that had been sanctioned by Washington and effectively put out of business, but whose fate was made a precondition of last week’s trade talks in a conversation between Trump and President Xi Jinping.

Trump agreed to allow ZTE to stay in business and the United States and China struck a deal to drop their tariff threats while they worked on a wider trade agreement, U.S. Treasury Secretary Steven Mnuchin said on Sunday.

Washington had threatened to impose tariffs on $50 billion of Chinese imports unless Beijing rectified its theft of U.S. intellectual property. After China responded with its own tariffs on U.S. agriculture, Trump threatened to impose duties on an additional $100 billion of Chinese goods, a move that hit global stock markets hard due to fears of rising protectionism.

U.S. Commerce Secretary Wilbur Ross will travel to China next week to help finalize a trade agreement, Mnuchin said on Monday. Most observers say a firm deal is likely to take a long time.

In an interview earlier with CNBC, Mnuchin characterized the U.S. tariff plan as suspended, but warned that “the president can always put tariffs back on.”

Speaking at a daily briefing, Chinese foreign ministry spokesman Lu Kang said both countries had clearly recognized that the reaching of a consensus was good for all.

“China has never hoped for any tensions between China and the United States, in the trade or other arenas,” Lu said.

But Chinese media was also quick to point out how the country had successfully defended its interests.

Mei Xinyu, a commerce ministry researcher, wrote on the WeChat account of the overseas edition of the ruling Communist Party’s official People’s Daily that the agreement preserved China’s right to develop its economy as it sees fit, including moving up the value chain.

The deal also focused on China’s “positive position” to increase imports rather than a “negative position” of getting it to cut exports, Mei said.


The official China Daily said everyone could heave a sigh of relief at the ratcheting down of the rhetoric, and cited China’s chief negotiator, Vice Premier Liu He, as saying the talks had proved to be “positive, pragmatic, constructive and productive”.

“Despite all the pressure, China didn’t ‘fold’, as U.S. President Donald Trump observed. Instead, it stood firm and continually expressed its willingness to talk,” the English-language newspaper said in an editorial.

During an initial round of talks this month in Beijing, the United States demanded that China reduce its trade surplus by $200 billion. No dollar figure was cited in the countries’ joint statement on Saturday.

Some in U.S. business groups who had been pushing for tougher measures to pressure China to ease long-standing market barriers on U.S. companies expressed disappointment.

James Zimmerman, a Beijing-based lawyer and a former chairman of the American Chamber of Commerce in China, said the Trump administration’s move to walk back its threatened trade actions was premature, and a “lost opportunity” for American companies, workers and consumers.

“The Chinese are in a state of quiet glee knowing that Trump’s trade team backed off on sanctions without getting any real and meaningful concessions out of Beijing,” Zimmerman said.

But Jacob Parker, vice president of China operations at the U.S.-China Business Council, called the apparent de-escalation in trade tensions “a great bit of progress”.

“We were never supportive of tariffs, so any actions that can be taken to stop those from being implemented are positive from our view,” Parker told Reuters.


Stocks with major exposure to China such as Boeing Co and Caterpillar Inc gained on news of a softening in the trade rhetoric of recent weeks. The dollar also gained against a basket of currencies.

Goldman Sachs noted the lack of specifics in statements by U.S. and Chinese officials, which it viewed mainly as evidence that both sides wanted to continue talking.

“We do not rule out the possibility that the Chinese team offered some tangible concessions which helped the progress of the talks, but as other aspects of an agreement are still in flux, has avoided stating these offers in public,” Goldman Sachs wrote in a research note.

Some analysts in Beijing warned that trade tensions would persist, and that China should prepare for more action on trade from the Trump administration.

“We should not be blindly optimistic,” Shi Yinhong, an expert on China-U.S. relations at Renmin University, said at a forum on Sunday after the trade agreement was announced.

“Blind optimism (could lead to) China losing at this crossroads.”

Shi, who has advised the government on diplomatic issues, said China could accept a lower trade surplus and reduce its market entry barriers, but would not compromise on its industrial policy.

The People’s Daily said that in the energy and agriculture sectors the two countries had obvious synergies, with the United States having the capacity to satisfy the massive Chinese market.

“The ballast stone of Sino-U.S. ties are an equal and mutually beneficial trade and business relationship. Its essence is win-win cooperation,” it said.

But China was not being forced to increase imports as a way to ward off the trade tensions or because the country had submitted to outside pressure, the newspaper said.

(Reporting by Ben Blanchard, Michael Martina and Elias Glenn, Additional reporting by Susan Heavey in Washington; Editing by Darren Schuettler, Robert Birsel and Paul Simao)

Copyright 2018 Thomson Reuters. Click for Restrictions.

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