Trade War

At the conclusion of brief talks last week between China and the U.S., the twelfth round since the U.S. declared China in violation of Section 301 of the Trade Adjustment Act, and the first discussions between the trade teams since May when talks broke down, the White House stated that China has confirmed its “commitment to increase purchases of United States agricultural exports,” while the Chinese side did not specify what products it would purchase, saying it would consider its internal demand. American soybean exports to China have been nearly cut off since the escalation of trade tariffs last year, while U.S. pork exporters are especially eager to see export gains after African swine fever has devastated pig herds in China.

The statement came at the conclusion of two days of meetings in Shanghai between teams led by U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He.  Trump and Chinese President Xi Jinping agreed at the G-20 leaders meeting in late June to restart negotiations, and Trump later told reporters that he expected to China to immediately begin making major purchases of agricultural products. However, during the discussions last week,  he complained on Twitter that China had not followed through, exposing a potential vulnerability as he runs for reelection in 2020.

U.S. farm exports to China are estimated to be the lowest in years as a result of China’s retaliation to Trump’s tariffs on $250 billion of Chinese goods. The U.S. Agriculture Department currently forecasts U.S. farm exports to China at just $6.5 billion in fiscal 2019, which ends Sept. 30. That’s down from $16.3 billion in fiscal 2018 and more than $20 billion annually when Barack Obama was president.

Treasury Secretary Steven Mnuchin and Chinese Commerce Minister Zhong Shan were also part of the talks in Shanghai, which focused on U.S. concerns about forced technology transfer, intellectual property rights protection, services, non-tariff barriers, and agriculture, the White House said.

President Trump and USTR Lighthizer are said to each have different objectives in the trade talks, with the president focused on direct interests — such as Chinese purchases of American goods — and the trade representative prioritizing system changes in China.

China had earlier asked the U.S. to remove all tariffs as a precursor to a deal and said any agreement must not undermine its sovereignty. The U.S., meanwhile, insisted on a forcible enforcement mechanism, such as a change in Chinese law, and insisted on keeping tariffs in place until it was satisfied China had delivered on its commitment.

The U.S. and China each have a different approach to address enforcement issues in addressing their concerns over forced technology transfer and other matters at issue between the two countries, with the U.S. trusting in legislative changes for enforcement, while China relies on administrative orders to make changes. In recent days, there has been talk that the U.S. has been coming around to the Chinese position. Particularly after China’s trade minister Zhong Shan played a more prominent role in the discussions than in previous rounds. His greater involvement had caused concerns among some U.S. delegates as he is perceived as tougher negotiator.

Xinhua reported that the Chinese negotiating team included Commerce Minister Zhong Shan, People’s Bank of China Governor Yi Gang, vice-minister of commerce Wang Shouwen, National Bureau of Statistics director Ning Jizhe, vice-minister of finance Liao Min, vice-minister of foreign affairs Zheng Zeguang, vice-minister of industry and information technology Wang Zhijun, and deputy director of the Central Agricultural Office Han Jun.

The next round of talks will take place in September in the U.S.

So what does this lack of progress on removing tariffs? A recent analysis by Morgan Stanley opined that the continuing tariffs will remain the most visible contributor to dragging globalization, or “slowbalization”. Other geopolitical developments triggering change include Brexit, challenges to multilateral trade pacts, and U.S. government moves in addition to tariffs, like restricting Huawei and expanding the authority of the Committee on Foreign Investment in the United States, known as CFIUS, they said. Several “pre-existing trends” — like the lessening importance of lower wages in supply chain location decisions and trade in services growing faster than trade in goods — are also slowing globalization.

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