Copyright Chip Somodevilla, Getty Images
96237849
96237849
96237849
96237849
96237849

US-China Trade Truce May Not Last With Differences Unresolved

May 21, 2018
Treasury Secretary Steven Mnuchin declares a ceasefire: “We’re putting the trade war on hold.”

The U.S. and China declared a truce in their trade dispute over the weekend, but that will prove temporary if the world’s two largest economies fail to deliver on their vague commitments to re-balance trade.

“We’re putting the trade war on hold,” Treasury Secretary Steven Mnuchin said Sunday after the two sides released a joint statement a day earlier. “Right now, we have agreed to put the tariffs on hold while we execute the framework.”

For now, Mnuchin’s cease-fire declaration will soothe the nerves of investors worried that the world’s two biggest economies were on the verge of an all-out trade conflict. President Donald Trump had threatened to slap tariffs on up to $150 billion in Chinese imports, and Beijing vowed to respond in kind.

But the statement -- released on Saturday after two days of talks between Chinese Vice Premier Liu He and senior American officials, including Trump -- isn’t seen as a panacea to the months-long conflict.

The truce is “little more than a brief de-escalation of tensions,” said Eswar Prasad, a trade policy professor at Cornell University and former head of the IMF’s China unit. “The fundamental differences on trade and other economic issues remain unresolved.”

Asian stocks gained Monday and U.S. equity futures jumped on the news that the trade war is on hold for now. Treasury yields nudged higher, taking the dollar with them.

During the talks, China and the U.S. agreed to “substantially” reduce the U.S. trade deficit in goods with China. Beijing promised to “significantly” increase purchases of U.S. goods and services, but there was no dollar figure attached, despite White House assurances that China would cave to its demand for a $200 billion annual reduction in the trade gap.

China’s state media put a positive spin on the outcome, citing an interview with Liu in Washington on Saturday in which he said the sides agreed avoid trade war and “stop slapping tariffs against each other,” the Xinhua News Agency said. That people in both nations think their country lost shows the agreement is relatively fair and a win-win for each side, the Global Times said in a commentary Monday.

Trump has an important strategic reason for removing the tariff threat against China: He needs Beijing’s cooperation as he prepares for an historic summit with North Korean leader Kim Jong Un in Singapore on June 12. It’s hard to imagine a peace deal with North Korea without the involvement of China, Kim’s most important political and economic ally.

If trade talks with China fizzle, the president may soon feel pressure to clamp down again, especially with congressional elections looming in November. In their efforts to save the party’s majorities in the House and Senate, Republicans will lean hard on Trump after his fiery anti-China rhetoric and promises to help the working class in states like Ohio and Pennsylvania resonated with voters.

“As this process continues, the United States may use all of its legal tools to protect our technology through tariffs, investment restrictions and export regulations,” U.S. Trade Representative Robert Lighthizer said in a statement Sunday. “Real structural change is necessary. Nothing less than the future of tens of millions of American jobs is at stake.”

Trump remains preoccupied with the U.S. trade deficit and that will be difficult to shrink in the short term. It’s unclear how Beijing will ramp up buying of American products, even though the one-party state exerts greater control than most governments over the spending decisions of companies. Republican tax cuts and spending increases are set to inject fiscal stimulus into the U.S. economy that will stoke demand for foreign-made products.

It’s “difficult to contemplate” how the two countries could cut their trade imbalance by $200 billion, said Victor Shih, a professor at the University of California in San Diego who studies China’s politics and finance.

“Even with a drastic reallocation of Chinese imports of energy, raw materials and airplanes in favor of the U.S., the bilateral trade deficit may reduce by $100 billion,” said Shih. “A $200 billion reduction would mean a drastic reduction in Chinese exports to the U.S. and a dramatic restructuring of the supply chain.”

Little Progress on IP

The U.S. made little progress forcing China to respect American intellectual property -- the issue that caused the U.S. to threaten tariffs in the first place. The joint statement said only that both sides “attach paramount importance to intellectual-property protections,” and agreed to cooperate more. China will change its laws and regulations in this area, including its patent law, according to the statement.

The statement also didn’t mention additional U.S. demands, including a halt to subsidies and other government support for the Made in China 2025 plan that targets strategic industries from robotics to new-energy vehicles.

And there was no mention of Chinese telecommunications maker ZTE Corp., facing a death sentence after it was cut off from American suppliers for allegedly lying to the U.S. government after flouting sanctions. Trump raised eyebrows last week when he instructed officials to give the company a lifeline.

“The statement was very short and general, and lacked specifics,” said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong and a former International Monetary Fund researcher. “The broader tension is not resolved.”

By Bloomberg News

Popular Sponsored Recommendations

Empowering the Modern Workforce: The Power of Connected Worker Technologies

March 1, 2024
Explore real-world strategies to boost worker safety, collaboration, training, and productivity in manufacturing. Emphasizing Industry 4.0, we'll discuss digitalization and automation...

Transformative Capabilities for XaaS Models in Manufacturing

Feb. 14, 2024
The manufacturing sector is undergoing a pivotal shift toward "servitization," or enhancing product offerings with services and embracing a subscription model. This transition...

Shifting Your Business from Products to Service-Based Business Models: Generating Predictable Revenues

Oct. 27, 2023
Executive summary on a recent IndustryWeek-hosted webinar sponsored by SAP

Achieving Maximum Value in Industry 4.0 with Intelligent Asset Management

June 27, 2022
Achieving Maximum Value in Industry 4.0 with Intelligent Asset Management.

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!