China’s top trade negotiator Liu He will visit the U.S. this week for a new round of high-wire talks, in a sign Beijing is battling to keep negotiations on track after President Donald Trump ratcheted up pressure with plans to raise tariffs on Chinese goods Friday.
Vice Premier Liu will meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, on May 9 and 10, according to a statement Tuesday on the Chinese Ministry of Commerce website. At the same time, China is preparing retaliatory tariffs on U.S. imports should Trump carry out his threat, according to people familiar on the matter.
The Shanghai Composite Index closed up 0.7 percent amid signs that talks between the world’s two largest economies hadn’t fallen apart, even as stocks in Europe dropped and U.S. equity-index futures were lower. The dollar edged higher as Treasury yields were steady.
The latest twist sets up Thursday as a crucial moment in the yearlong trade war with potentially huge ramifications for companies, markets, consumers and politicians in both nations: With a U.S. ultimatum now overhead, will Liu offer enough concessions to stave off higher tariffs or will Chinese authorities play hardball and respond with retaliatory measures?
“The fact that China sends a delegation to the U.S. shows it is still willing to solve the dispute by negotiations regardless of what the U.S. is saying,” said Lu Xiang at the state-run Chinese Academy of Social Sciences in Beijing. “If the Trump administration follows through with the tariffs threats on Friday, I think it means the talks fall apart. We then need to be prepared for worse than worst.”
China would make its retaliatory tariffs effective one minute after the U.S., if the decision to add an extra 25 percent in duties on $200 billion of Chinese imports comes into force, the people said, who asked not to be named as the matter isn’t public. The State Council and Commerce Ministry didn’t respond to requests for comment on the tariff plans.
The trade talks were cast into doubt after Trump’s surprise announcement over Twitter on Sunday that he planned to raise the tariff increase from the current 10 percent because talks were moving too slowly. The president said he may also impose duties “shortly” on $325 billion of Chinese goods that aren’t currently covered, a move that would hit virtually all imports from the Asian nation.
The Trump administration plans to increase duties on Chinese imports at 12:01 a.m. on May 10, Lighthizer said Monday. “We felt we were on track to get somewhere. Over the course of last week we have seen an erosion of commitments by China. That in our view is unacceptable,” he said, adding that significant issues remain unresolved, including whether tariffs will remain in place.
China was “well prepared for other potential outcomes” of its trade talks with the U.S., “including a temporary breakdown in talks,” the Global Times newspaper said in an editorial Tuesday. The door wasn’t closed to talks even if the U.S. raises tariffs, the newspaper said.
Lighthizer and Mnuchin told reporters on Monday that the Chinese backsliding became apparent during their visit to Beijing last week, but that they had been reassured by their Chinese interlocutors that everything would turn out.
That changed over the weekend when China sent through a new draft of an agreement that included them pulling back on language in the text on a number of issues, which had the “potential to change the deal very dramatically,” Mnuchin said. At that stage about 90 percent of the pact had been finalized, he said, and the Chinese wanted to reopen areas that had already been negotiated.
“We are not willing to go back on documents that have been negotiated in the past,” he said.
According to two people familiar with the U.S.’s position, China backtracked on committing to legal changes that American officials saw as key to selling the deal domestically as the biggest concession any U.S. administration has ever gotten from China.
This isn’t the first time an apparent agreement faltered. A year ago, Liu told reporters in Washington that talks with Mnuchin, Lighthizer and Secretary of Commerce Wilbur Ross ended with a pledge not to engage in a trade war.
I may have told this story before but I experienced, first hand, China’s peculiar economic strategy of growth via building projects on one of my trips.
Firstly, I was there because we had entered into a distribution relationship with an architect who is one of the CCP’s “chosen ones” for these large scale public works projects. The guy was a total kook. Every meeting involved him bloviating for 45 minutes at a time on whatever topic was being discussed. This was a guy whose personality was cultivated by a reality where there is no such thing as failure as every mistake and inefficiency is rewarded with more work and a more pots of gold. So your project was late, over budget and required massive reworks? Great, that means you created more jobs. This is the system that molded his notions of capitalism and, of course, he was an absolute expert on everything.
Per the above I was skeptical of his plans for distributing our line from the outset. The business model he proposed sounded entirely unrealistic and it seemed to me that he his knowledge of our our industry was virtually nil. Nevertheless what he was proposing would involve the immediate sale of several hundred thousand in floor samples and an opportunity for us to learn about the Chinese market. Skepticism aside, we entered the agreement and planned a trip to Shenzhen for a trade show where we would be shown in this grand new exhibition hall that our architect friend had designed.
Brief interlude to mention that there was no reason for this new exhibition hall to exist. China already had more furniture trade shows than made any sense and adding another would do nothing to stimulate anyone’s business beyond the builders of the hall itself.
Anyway, we arrived two days before the opening of the show to find the hall in total disarray. They were many months behind schedule and had a hard deadline as the show opening was imminent. On order to get the building whipped into a semi serviceable state the CCP had imported 5000 peasants from the countryside and put them to work doing - well, stuff. First problem with this is that the building exits weren’t designed to accommodate the traffic of 5000 workers. Solution? Someone drove a bulldozer through an exterior wall and put plywood down over the rubble for worker to walk on. The building’s grand central atrium was supposed to have walkways lined with plate glass safety railings. These were propped in place but not secured so that anyone leaning on one would have fallen to their demise. The flooring in the hallways was half complete in the sense that marble tiles were installed in the center third of the halls but not the outer 2/3rds. Presumable they were waiting on a contrasting tile that failed to arrive. Delays of this nature I can understand. Their solution, not so much. They decided to throw down concrete powder in the outer 2/3rds to bring the level up to the marble tiles that were already on place. Presumably this was to be removed after the show so the actual tiles could be installed. Result? Well for one all the carts moving furniture to the showrooms predictably broke just about every perimeter tile that had been put down. The concert also kicked up and extraordinary amount of dust which settled in the escalator mechanics resulting in a loud screeching noice and ruined gears in every unit in the building. Finally, throughout he course of the show, foot traffic, humidity and random spills had essentially caused the concrete to set forcing an expensive and labor intensive removal after the show.
I could go on and on but I think you get it. The big point is that this is not an economy that plays by the market dynamics of western capitalism. In China this clustefuck was considered a resounding success for all the work opportunities it presented. Where global trade is concerned China will gladly run similar losing scenarios. They fund this through a combination of subsidies and the gained economic benefit from siphoning industries away from their trading partners. A fundamental component of this is extraordinary public debt - much of which they try to hide from the world but that is readily apparent when your there, in person and can take in the absurdity of their economy. Importantly, this model is a scheme that will eventually and inevitably crash. When it does, we will be well served to have decoupled our economy from their as much as possible. In the meantime, it’s absolutely correct that we take steps to mitigate the damage their subsidies and mercantilism do to our industries.
China tapped a long time ago and Trump is still cranking like Palhares.
I didn't know we were bound by law to help them defend themselves.
It might be well known but I was ignorant of it until today. So I'm glad I learned something.Really? I thought the U.S-Taiwan Relations Act was rather well-known. It's the only reason why the PLA didn't overrun that tiny island like they did with Tibet.
We have similar Mutual Defense treaties with Japan, South Korea, and the Philippines as well to keep China in check, though the last one should be cancelled the moment we got fed up and left Subic and the Chinese immediately began taking over all the surrounding islands.
I didn't know we were bound by law to help them defend themselves.
Really? I thought the U.S-Taiwan Relations Act was rather well-known. It's the only reason why the PLA didn't overrun that tiny island like they did with Tibet.
Taiwan is also home to some of the largest pure play semiconductor foundries and most advanced process technology in the world (Intel and Samsung can hang) with tech assets heavily integrated into the US defense network and supply chain. We'd go to war over that island.