US-China begin trade talks to call off tariff war: All you need to know

Trade talks to end the tariff war between the US and China opened in Beijing three months early, causing the Dow to rise 150 points and boosting investor sentiment in Asian markets. Foreign Ministry spokesman Lu Kang confirmed on Monday during a routine briefing that the negotiations had begun amid mounting optimism.

US Commerce Secretary Wilbur Ross told CNBC there is “a very good chance that we’ll get a reasonable settlement that China can live with, that we can live with, and that addresses all the key issues.”

The American side in the trade talks was being led by a deputy US trade representative, Jeffrey Gerrish, according to the US government. The delegation includes other mid-level trade officials from agriculture, energy, commerce, treasury, and the State Department. The Chinese government gave no details of who would represent Beijing, although The Washington Post reported Vice Premier Liu He to be present at the meeting. 

What’s on the table?

In a bid to end the trade war that has imposed billions of dollars in tariffs over the year, the US is willing to lift them in exchange for concessions in Chinese business practices, which they argue violate open-market regulations. Top administration officials are reportedly confident of leveraging an end to China’s practice of forcing US companies to hand over key technology in return for gaining access to China’s market, among others.

A potential deal would likely involve a sharp increase in Chinese purchases of American soybeans and liquefied natural gas. Getting Beijing to buy more American products is the easier aspect of the truce. China had already agreed to expand US imports according to the needs of the domestic market and the people in order to ease the trade imbalance.

What will prove challenging to the Communist Party is how to level the playing field for US companies operating on Chinese soil, as it would require significant structural changes in how China manages its economy that could put Jinping and China’s state-owned enterprises in a vulnerable position. Trump has been vying for a major reform in the Chinese industrial policy system, which he think unfairly disadvantages foreign companies in China.

A brief glance at the tariff war

When the feud was in its nascent stages, Trump had threatened to impose a maximum of $60 billion worth of tariffs on Chinese goods, especially steel and aluminium. By the end of the year, the amount of tariffs was a whopping $250 billion, while Beijing too retaliated with tariffs worth $110 billion on US goods including soybeans, wine and livestock products.

The nine-month-long dispute has had a far-reaching impact on the global market, as two of the world’s largest economies upped their ante and announced tariff hikes on a wide range of industrial, manufacturing and agricultural products well until November 2018. Even Apple reported a record low in iPhone sales in China last week.

A slowdown in Chinese economic growth, which fell to a post-global crisis low of 6.5% in 2018, has not boded well with the Asian market either. Auto sales tumbled 16% in November over sales figures from a year earlier. Weak real estate sales are also forcing developers to cut prices. Cooling economic growth in both countries has thus, served to turn up the pressure on each government to reach a settlement. Furthermore, with the US headed for Trump’s re-election campaign, a five-decade low unemployment rate, and weakening consumer confidence has to be immediately remedied.

What happened at the G20 Summit?

This comes a month after the “highly successful meeting” between US President Donald Trump and his Chinese counterpart Xi Jinping during the G20 summit, when both leaders agreed to stall additional tariffs and de-escalate the ongoing trade war.  Both sides proposed a series of constructive plans on how to properly resolve existing differences and problems, including opening the market to each other.

Following the summit, China slashed tariffs on US-built cars on December 11, as diplomats from Beijing and Washington spent the rest of the month discussing the road map for the next stage of trade talks. Trump said last week, “I think we’ll have a deal with China.”  Chinese Foreign Ministry spokesman Lu Kang said both countries have agreed to hold “positive and constructive” discussions.

By the end of Monday, China’s blue-chip CSI 300 index had risen by 0.6% on Monday while in New York the Dow Jones industrial average was up by a similar margin in midday trading.

If all in the current round of negotiations goes well, senior officials of both states may meet in Washington in the coming months.

Prarthana Mitra is a staff writer at Qrius

ChinaInternational TradeTariff WarsUS-China Trade WarUSA