United States: Trump-Xi meeting yields fragile 90-day trade truce
The widely anticipated meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G20 summit in Buenos Aires on 30 November–1 December concluded with an agreement to temporarily halt the escalation of the trade dispute between the world’s two economic giants. President Trump agreed not to raise the tariff rate on USD 200 billion of Chinese imports from 10% to 25% on 1 January 2019, as he had previously declared, instead opening a 90-day window for both parties to reach a more conclusive deal. Presumably, Trump will also refrain from imposing new tariffs on a remaining USD 267 billion of imports not currently taxed, another threat he had previously made against Chinese-made goods. In exchange, according to a White House statement, “China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product”. Trump also tweeted late on 2 December that “China has agreed to reduce and remove tariffs on cars coming into China from the U.S.”—although neither this nor the purchasing agreement have yet been confirmed by an official Chinese source.
On the surface, the move represented a much-welcomed short-term victory for both countries’ leaders as they grapple with domestic political issues—an ongoing economic slowdown for Xi, and the fallout from the assassination of the Saudi Arabian journalist, Jamal Khashoggi, and the Russia investigation for Trump. The agreement initially buoyed stock markets, with most major equity indexes in the U.S. and Asia alike posting strong gains at market opening on Monday. However, the rally was short-lived, as markets pared back their gains following a series of tweets from Trump on Tuesday which cast doubt on whether an accord had truly been reached. Looking beyond the relatively minor concessions made by each side so far, the most significant development of this Trump-Xi meeting was that both leaders publicly displayed their desire to reach a conclusive deal. This should provide fresh impetus to the lower-level officials who work behind the scenes of the bilateral exchange.
Nevertheless, the road to more meaningful, permanent progress on trade negotiations remains fraught with obstacles, given the wide discrepancy between the two countries’ positions on most major issues. Notably, according to the White House statement, the U.S. and China shall immediately resume talks on issues of “forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture”. Failure to reach an agreement within the 90-day period, ending on March 1, would see the U.S. follow through with its planned tariff hike and a potential further escalation of trade actions.
Though they see negotiations remaining difficult, UBS analysts appear cautiously optimistic, outlining that “domestic support for further market opening, better IP protection and SOE reforms has increased in China in recent months”. Expanding on this point, they argue: “China is likely to agree to speed up market opening in a number of industries […] China hopes that such opening will help address US concerns on technology transfer and IP protection. China has already said that it would enhance IP court system and introduce punitive damage on IP violations.”
Whether this will satisfy American negotiators, however, remains to be seen. Trump has appointed a notorious China hawk, U.S. Trade Representative Robert Lighthizer, to spearhead the talks and issues directly related to the Made in China 2025 policy could present the most serious point of contention. Pivotally, it is currently unclear if, and to what extent, China would be willing to concede on objectives it considers of strategic importance to cement its status as a 21st century superpower. Nevertheless, it is possible, as UBS analysts believe, that the Chinese leadership would agree to downwardly revise some of its market-share targets in select industries, and accompany the move with corresponding reduction of subsidies to state-owned firms in said sectors.