Tricks of the trade wars

US-China talks are unlikely to ease lingering tensions.

You’ve seen the movie, now try to read the book.

World markets have reacted with relief and the Australian dollar has risen on news that China’s President Xi Jinping and American President Donald Trump had reached a deal over a much choreographed dinner in Argentina on the weekend.

But the understandable euphoria that markets felt at the staged photo ops in Buenos Aires after months of tension will now have to be tempered by three months of ping-pong diplomacy between Beijing and Washington over what has been agreed before the March 1 deadline.

The weekend truce has already seen a reworking of expectations and an easing of fears by observers concerned about the economic fallout from a prolonged trade war and rising protectionist pressures.

Yesterday’s monthly Reserve Bank statement, released after its board meeting, dropped a sentence from its November statement about “ongoing uncertainty regarding the global outlook … from the direction of international trade policy in the US”.

The removal of a negative — even temporarily — is a positive.

But the RBA, like other policy makers, can only wait to see how the next few months unfold. While the weekend photos looked impressive, the so-called deal is another move into the uncharted waters of Trumpian diplomacy.

On the weekend, it was clear that what was being announced in China and what was announced in the US had some differences.

While the China announcement talked up a breakthrough agreement, it did not mention the 90-day deadline hanging over the negotiations.

Trump then followed up with a tweet that China had agreed to “reduce and remove” tariffs on US car imports — something which seemed to surprise his own aides.

China has not announced anything of the sort, although a story in the China Daily yesterday talked about a long-term plan for more foreign car imports to give Chinese consumers more choice.

It talked about a “parallel import program” that would encourage more imports of foreign cars into China through some 12 free-trade zones, which it said would “offer customers more choices and open up its automotive industry wider to the world”.

It is a story clearly aimed at paving the way for more foreign car sales, but it is a long way from saying China will be removing all tariffs on US car imports.

China cut its tariffs on car imports from around the world from 25 to 15 per cent, but it added another 25 per cent to tariffs on US car imports around mid-year, taking the tariff rate to 40 per cent, in retaliation to an early round of US tariffs on Chinese exports.

The discussions between China and the US are meant to include dropping the additional tariffs imposed this year as part of the trade war, provided that an overall agreement is reached which satisfies the US.

If that is agreed — and it is a big if — does it mean tariffs on US car sales to China will go back down to 15 per cent or be eliminated altogether?

It’s just one example of things to come.

Fortunately, the issue of US car sales to China does not affect Australia, but China’s agreement on the weekend to step up purchases of US products including agricultural and energy products could well have a direct impact on Australian exporters of beef, fruit, dairy products, wine and LNG.

Some big numbers in terms of increased China buying from the US are already being thrown around in Washington.

Australia has a strong vested interest in the strength of the economy of its largest trading partner and a settlement or easing of the US-China trade war.

The news of a deal or possible deal has already helped boost the Chinese currency, a sign that markets see it as positive for China, as well as the Australian dollar which is seen by many foreign investors as a proxy for the Chinese economy.

But given the erratic movements on both sides and a strong commitment by China to buy a lot more US goods, anything can happen on the road to a deal, and there is always the danger of some existing Australian exporters becoming roadkill.

A visit by Prime Minister Scott Morrison before the end the year would be well timed to remind the Chinese that Australia has been a loyal long-term trading partner whose interests also need to be protected in any Beijing-Washington negotiations.

So far, Trump’s use of social media is outstripping a controlled China media environment and Beijing’s cautious public comments.

Peppered with questions on what would be the next step in the trade talks, China’s Foreign Affairs Ministry spokesman Geng Shuang said officials from both sides were working hard towards goals set out by their presidents.

“China is willing to open up its market and expand imports according to the progress of its new round of reform and opening up, as well as the needs of its people and the domestic market, and to ease concerns on issues surrounding China-US relations,” he said.

But in Washington, White House economic adviser Larry Kudlow is saying that the US expects China to live up to its pledge to act immediately on trade issues including the lower tariff on cars and measures against intellectual property theft and forced technology transfers.

“They cannot slow walk this, stall this, meander this, ” he said.

“The history here with China promises is not very good,” he said, but added that this time Xi was involved in trying to make it work.

As they say, watch this space. The next few months will be a wild ride for those exposed to the fallout from US-China trade wars and it has only just begun.