In the highly anticipated summit between Chinese President Xi Jinping and US President Donald Trump held on the sidelines of the G20 summit on June 29 in Osaka, Japan, the leaders once again agreed to halt their escalating trade war. After the meeting, Trump said he would hold off on imposing additional tariffs on Chinese imports.
Following the collapse of bilateral trade talks in May, the US increased tariffs on US$200 billion worth of Chinese products from 10 percent to 25 percent. China retaliated with tariffs on US$60 billion in US goods. Trump then threatened to raise tariffs on an additional US$325 billion of Chinese imports. Washington also put tech giant Huawei on an “entity list,” alleging the company poses a threat to national security, and banned American suppliers from selling technology and hardware to Huawei without government approval.
According to a Wall Street Journal report, during the meeting, China had made lifting the ban on Huawei a precondition for relaunching trade talks. While the White House denied there were any preconditions, there appears to be some kind of agreement on the issue.
Following his summit with Xi, Trump said that China would start to buy “large amounts” of American agricultural products. In the meantime, Chinese telecommunication giant Huawei would be allowed access to American hardware and software. Trump said he would leave the Huawei issue to the end of the trade negotiations.
Trump later tweeted that Huawei would be allowed to buy from American firms products “which will not impact our national security.” According to Trump’s top economic adviser Larry Kudlow, Huawei will remain on the blacklist, but American companies will be granted licenses to do business in areas that have no “national security influences or consequences.”
For its end of the bargain, China is purchasing farm products from the US. Shortly after the meeting, the US Department of Agriculture confirmed the sale of 544,000 tons of US soybeans to China, the largest such sale since March. Reuters also reported that a Chinese importer bought two containers, or 40 tons, of US rice, China’s first purchase of American rice. But these sales seemed minimal compared to the losses of US agriculture exporters due to China’s retaliatory new tariffs. For example, US soybean farmers saw a drop of 80 percent in their sales to China from US$9.1 billion between October 2017 and March 2018 to US$1.8 billion between October 2018 and March 2019.
Trump then opened fire again, tweeting on July 11 that China is “letting us down” by not buying American agricultural products “that they said they would.” Then on July 15, Larry Kudlow said that China must announce significant purchases of American agricultural products for trade talks to advance. “We expect China to be announcing shortly some large-scale purchases of farm goods and services,” Kudlow told reporters.
According to the South China Morning Post, which cited an unnamed American source briefed on the situation, Beijing’s stance is that it wanted to see the Trump administration ease its supply ban on Huawei before committing to agriculture purchases from the US.
So far, despite Trump’s announcement of lifting the ban on Huawei, the White House has not specified detailed information on the issue. A senior US official reportedly said in mid-July that licenses could be granted to US companies to do business with Huawei by the end of July or mid-August, but the criteria for approvals remain unclear.
Even if approvals are eventually granted, China may not see that as enough. Since Huawei remains on the blacklist, such short-term, temporary approvals can be suspended anytime. Moreover, whether Huawei will be allowed to use the Android operating system for its smartphones, as well as Google services, something vital to its global mobile business, is still unknown.
On July 12, Huawei Chairman Liang Hua told Chinese media that he has not seen any “substantial changes” regarding the company’s business with US firms. Liang added that even if Huawei’s US suppliers resume their business with the company, Huawei will require them to ensure “the stability and certainty of their future supplies.”
In the meantime, Huawei is reportedly planning to lay off hundreds of employees in the US, as the impact of the US blacklist kicks in.
Besides the seemingly half-hearted compromises from both sides, officials from both sides exchanged some tough rhetoric even before the trade talks could be actually resumed. At a news conference held by China’s Ministry of Commerce on July 4, spokesperson Gao Feng said for the two countries to reach a deal, all existing tariffs imposed by the Trump administration have to be lifted.
Gao also stressed that any deal must be “balanced, equal and mutually beneficial,” and that “China’s core concerns must be properly addressed.” Chinese officials have held similar positions during the two countries’ earlier talks, but the rhetoric has since become much more assertive.
In the meantime, China has reshuffled personnel in its negotiation team. During its recent briefing, Beijing announced that Zhong Shan, China’s commerce minister, would join China’s trade team along with Chinese Vice-Premier Liu He, who headed China’s trade team during previous trade talks.
Having served as China’s international trade negotiation representative between 2010 and 2017, Zhong has extensive experience in trade negotiations and is deemed a hardliner by Washington, which sees his presence in the new talks as a signal of a tougher position from Beijing.
While many in China argued that Zhong’s presence is just an effort to balance the two-person leadership on the US negotiating team of US Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin, there are indeed signs that China has become less enthusiastic and eager about reaching a deal with the Trump administration.
In an editorial released immediately after the Xi-Trump meeting on June 29, State-run newspaper the Global Times said that China will “be cool” about its prospects during the resumed talks.
“The US always says that it will only accept a ‘good deal,’ but they need to be aware that China will also only accept a ‘good deal,’” read the editorial. “The balance of strength between China and the US means that only a win-win deal is possible, and there will never be a deal in which only the US is a winner.”
“After all the flip-flopping, the Chinese public is now able to remain calm about the prospects of either the trade talks themselves or the overall relationship with the US,” the editorial continued.
According to Professor Zhu Feng, executive director of the Collaborative Innovation Center of South China Sea Studies and director of the Institute of International Studies at Nanjing University, the relationship between China and the US has experienced what he called a “paradigm shift,” which has led China to reassess the long-term nature of the bilateral relationship.
Having gone through the failed trade talks, many in China believe that the US now sees China as a strategic threat and the trade war is just a part of a grand strategy to contain its rise. Therefore, Beijing may no longer give top priority to reaching a trade deal, as it won’t change Washington’s overall hostile policy toward China, Zhu wrote in a commentary piece for The Observer on July 15.
Even if a deal is reached, Trump’s on-and-off tariff threats and his perceived flip-flop negotiation tactics have eroded Beijing’s faith in Trump to follow through. Perceptions that Trump’s recent moves appear to be driven by his election campaign agenda rather than a genuine desire to reach a deal with China could further complicate the trade talks.
In the past year, China’s retaliatory tariffs on US agricultural goods have led to a steady decline in farmers’ sentiments toward Trump. As farmers are seen as a major political power base for Trump in the upcoming 2020 presidential campaign, Trump’s focus on pressuring China to purchase US agricultural products is widely considered to be election-oriented.
“For Trump, everything is now about re-election, but for China, or any other country targeted by Trump, the concern is that if Trump could back down in order to get re-elected, he could also change his mind and become tough again, if not tougher, once re-elected,” Deng Yuwen, a commentator with the Chinese version of the Financial Times, wrote in a piece published on July 5.
On July 16, Mnuchin told reporters that he and Lighthizer will hold another round of phone talks with their Chinese counterparts and may travel to Beijing soon, something Beijing has declined to confirm. As mutual trust runs thin and stances remain far apart, the prospect of reaching a deal appears to be bleak.
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