US and China reach breakthrough on trade talks

The early framework hashed out in two days of talks between senior US and Chinese officials included a Chinese agreement to purchase more American farm products.

President Donald Trump shakes hands with Chinese Vice Premier Liu He after being given a letter in the Oval Office of the White House in Washington on Friday. Picture: (AP Photo)

The US and China took an initial step to cement a trade agreement that had been derailed, with Washington saying on Friday it would shelve a planned increase in tariffs on goods imported from China, while Beijing said it would increase purchases of US agricultural products.

The two sides left many details to be worked out in the weeks or months ahead on tough issues including China’s enforcement of intellectual property rules, US access to Chinese markets, Chinese government support for state-owned enterprises, and the fate of US tariffs on nearly $US360 billion ($530.3 billion) worth of Chinese imports already in place.

The Dow Jones Industrial Average finished the day higher on fresh signs of trade détente, rising 319.92 points, or 1.21 per cent, to 26816.59 points, but it fell from gains of more than 500 points after details of the tentative agreement came out.

The rough framework hashed out in two days of talks between senior US and Chinese officials in Washington included a Chinese agreement to purchase American farm products totalling $US40 billion to $US50 billion, President Trump said, without specifying over what time period that would occur.

In exchange, the Trump administration said it would forgo a planned increase in tariffs to 30 per cent from 25 per cent on $US250 billion in annual imports from China scheduled to go in place next week.

The tentative truce underwhelmed some international businesses that had been hoping the US and China would finish up a deal that cemented more sweeping structural changes in China’s economy, eliminated additional tariffs scheduled to go into place in December and even rolled back existing tariffs both sides have added to imports from each country.

The planned tariff increases in December on electronics, apparel and other imported consumer goods — a big uncertainty for many US firms — haven’t been shelved so far, Mr Trump’s trade adviser, Robert Lighthizer, said.

“If this turns out to be all there is, we could have achieved these results a year ago or more,” said Derek Scissors, a trade expert at the American Enterprise Institute who has advised the Trump administration.

Still, two days of congenial discussions did amount to a tamping down of tensions that had been increasing since talks broke down in the spring, when the US said Chinese negotiators reneged on agreements that had been hashed out.

The White House said on Friday that Mr Trump had received a goodwill letter from Chinese President Xi Jinping. “I attach great importance to your concerns on agricultural products,” Mr Xi said, according to a translation provided by the White House. “Recently, the Chinese companies involved have accelerated purchases of American agricultural products, including soybeans and pork.”

The two countries said they made progress on intellectual-property protection and rules to prevent currency manipulation, US officials said Friday, though they declined to offer specifics. Treasury Secretary Steven Mnuchin this February claimed to have already reached a currency agreement with China and cited it as sufficient to delay an earlier round of tariffs.

Mr Trump — facing a slowing US economy and an impeachment investigation in Congress — said the progress could lead to a “substantial phase one deal” that he and Mr Xi could sign in November at a coming summit of Asia-Pacific leaders.

The US appears to be far from its original goal of getting China to overhaul its economy and is instead saving major structural issues to negotiate later.

The details of the agriculture deal are rough. If China increases purchases of US agricultural goods by $US40 billion to $US50 billion in a year, that would mark substantial gains. In 2017, before the trade war started, China purchased about $US24 billion a year of US food and agricultural exports. If the promised sum is spread out over some longer period of time, it is less significant.

“This announcement of an impending deal hardly resolves any of the major underlying sources of trade and economic frictions between the two countries,” said Eswar Prasad, a China expert and an economist at Cornell University. “And from the perspective of businesses, it does not mitigate uncertainty about the future of the bilateral economic relationship.” Mr Trump laid out a schedule for finishing up a first phase of a deal with China in the coming weeks. Under that plan, there would be one or two subsequent phases of negotiations taking place over some unspecified period of time.

Rules on safeguarding intellectual property in China are mostly done, but some will be included in phase two, he said. The coercive transfer of foreign companies’ technology in China may span phases two and three.

Farmers applauded the progress with China, which has answered US tariffs with restrictions on American agricultural exports.

“The promise of additional ag purchases is welcome news, but details on timeline, price, commodities and many other questions will have to be answered,” said Brian Kuehl, co-executive director of Farmers for Free Trade.

Business groups were more cautious. “We look forward to reviewing the details of this announcement and urge both governments to work toward making additional structural reforms in China and eliminating tariffs,” said the Business Roundtable, a group of large US companies, in a statement.

Mr Trump announced the steps after US and Chinese negotiators worked this week in Washington and after the conclusion of a meeting with Chinese Vice Premier Liu He in the White House.

Mr Liu said the discussions with senior Trump administration officials were “very good.” Mr Lighthizer said one sensitive bargaining chip wasn’t included in this week’s trade discussions: the easing of regulatory restrictions that have put financial pressure on Chinese telecom giant Huawei Technologies Co.

Earlier this year, the Trump administration put Huawei on an export blacklist after warning that its products could be used to spy on or disrupt telecommunications networks, which the company denies.

The move put a barrier between some US chip makers and other companies that sent $US11 billion worth of components to Huawei last year.

On Friday, Mr Lighthizer said Huawei’s fate is being handled as a separate process.

Prior to trade talks, some politicians and Washington policy experts worried that US negotiators would agree to loosen restrictions on Huawei in a way that compromised national security.

On Friday morning, US Senate Minority Leader Chuck Schumer posted on Twitter that any deal with China “must not include concessions on Huawei.”
“That’s what China wants most, and it would show tremendous weakness,” he said. Earlier this week, the White House said it would clear licenses to enable some US suppliers to resume doing business with Huawei, according to a person familiar with the decision.

In August, China bought $US945 million of soybeans, the best month since January 2018, and recently the White House moved to greenlight licenses to do business with Huawei, though the Commerce Department didn’t say it had granted them.

China hawks from both parties have warned against easing pressure on Huawei, which many politicians and officials see as a national security threat.

The Trump administration kicked off the conflict in 2017 when Mr Lighthizer began investigating Chinese economic practices under a US trade law known as Section 301. The probe found evidence of intellectual-property violations, coerced transfer of technology and cyberhacking for business gain, and Mr Trump responded in March by authorising tariffs — first on just $US50 billion in mostly industrial imports from China.

Since then the tariffs footprint has expanded to include most products imported from China, including $US111 billion in mostly consumer items penalised with 15 per cent tariffs on September. 1. Beijing has responded with its own retaliatory tariffs on American farm products, cars and other products.