US-China talks seek breakthrough as tariffs sink trade
Nikkei Asian Review (08/01/2019) - BEIJING/WASHINGTON -- American and Chinese negotiators met in Beijing on Monday for the first round of talks under last month's tariff cease-fire, seeking to resolve tensions now starting to weigh on both economies after a dramatic drop in exports of tariff-hit goods.
The highlight of the first day of talks was the surprise appearance of Vice Premier Liu He -- Beijing's point man on trade and President Xi Jinping's right-hand man. Leaked photos from the event showed a beaming Liu attending the lower-level talks amid applause from U.S. delegates.
"China is sincere about properly resolving trade frictions on the basis of mutual respect, equality, mutual benefit and reciprocity," Ministry of Foreign Affairs spokesperson Lu Kang told reporters at Monday's press briefing.
The talks aim to quell a simmering trade war. Last year's tit-for-tat tariffs have brought the previously steady growth in trade between the world's two largest economies to a screeching halt.
U.S. government statistics show trade with China barely budging after a nearly unbroken stretch of growth dating back to at least 1986. Both economies are expanding at a solid pace, and China's overall exports to the U.S. continue to rise.
But the two rounds of additional tariffs imposed by Washington on July 6 and Aug. 23, covering $34 billion and $16 billion worth of Chinese goods, each sharply curtailed total American imports of the affected items following a brief uptick in demand.
Shipments of industrial robots sank 35% on the year in July, after the first set of duties, and tumbled 68% in October. The drop has hit not only Chinese players like Siasun Robot & Automation that sell to the U.S., but also companies in other countries that supply parts for robots, such as Japan's Yaskawa Electric.
In the other direction, China-bound U.S. exports of goods affected by Beijing's retaliatory duties started to shrink in July and slumped 42% in October, according to American consulting firm The Trade Partnership. These tariffs cover 70% of Chinese imports from the U.S. by value, including many products for which China can find alternative suppliers with relative ease, such as liquefied natural gas and soybeans.
The U.S. exported 630,000 tons of soybeans in June to China, the world's largest buyer of the crop. But exports steadily declined after an additional 25% tariff kicked in that July, falling to zero in November. Chicago soybean futures remain 15% off their 2018 high. While China has resumed importing American soybeans, prices have yet to really recover, and U.S. growers remain in a tight spot.
Shipments of electric vehicles have plunged as well, with China bringing in just two from the U.S. in October -- down from 1,549 in June. Automakers are accounting for the trade war in their pricing strategies. Tesla hiked Chinese prices in July in response to the tariff, only to lower them after sales slumped, followed by a second cut when Beijing announced plans to temporarily roll back higher duties on American cars.
The two-day meeting in Beijing will focus on hammering out the details of a Chinese proposal to boost imports from the U.S. by $1.2 trillion. Structural issues in areas where the U.S. demands reform, such as Chinese practices regarding intellectual property and technology transfers, are also on the agenda.
If the two sides cannot come to terms by March 1, the deadline agreed on in December by U.S. President Donald Trump and Chinese counterpart Xi Jinping, Washington will raise to 25% the 10% tariff it imposed on $200 billion of Chinese imports last September.
The negotiations are led by Deputy U.S. Trade Representative Jeffrey Gerrish and Chinese Vice Commerce Minister Wang Shouwen.
Washington and Beijing have both expressed optimism that this round of negotiations will yield meaningful progress.
"I really believe they want to make a deal," Trump told reporters on Sunday. "The tariffs have absolutely hurt China very badly."
"Their economy's not doing well," providing "a great incentive to negotiate," he said.
Experts on the Chinese side also sounded positive. "The U.S. and China clearly understand each other's goals and intentions, so the talks are more likely to reach a successful conclusion," former Vice Commerce Minister Wei Jianguo said.
The slowdown in trade between the two economic heavyweights is having knock-on effects worldwide, particularly in Asia.
Japan's machine tool exports to China plunged 67% on the year in November. Such manufacturers as Mitsubishi Electric are shifting production for the American market to facilities outside China. The trade war is also weighing on the economy of South Korea, which depends heavily on trade with China.
Asian prices for materials including steel, plastics and nonferrous metals have declined amid an influx of supply as Chinese producers facing U.S. tariff barriers seek alternative buyers.
Read more at https://asia.nikkei.com/Economy/Trade-War/US-China-talks-seek-breakthrough-as-tariffs-sink-trade