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For China, Trade War Truce Ends March 2

The 90-day trade war truce ends March 2. That’s the day U.S. Trade Representative Robert Lighthizer gave to increase tariffs on a number of Chinese imports if there is no progress in trade talks this month. Presidents Trump and Xi Jinping are supposed to meet in Asia over the next four weeks, possibly putting that date on hold. No date or location has been set.

Last week’s meeting between trade negotiators saw little progress on important issues like intellectual property protections, the biggest sticking point in a deal. China continues to open its market to foreign firms, with all-important financial services continuing to open up in mainland China. JPMorgan co-president Daniel Pinto said the firm is on track to open an investment bank in China this year and acquire a greater stake in a Chinese wealth management firm it has been partnered up with for the last few years.

”It wasn’t too surprising that the latest talks ended without a deal, which makes sense considering the limited reform policies we’ve seen from China since December,” says Nick Marro, Asia and China analyst at The Economist Intelligence Unit. “The most important preconditions for a deal will rest on how drastically China is reforming its own business environment, not on how many U.S. exports the Chinese are willing to purchase.”

Trump has complained incessantly about the yawning trade gap between the two countries. The trade deficit with China widened again last year. Rumor had it that some people involved in the China talks said China would increase imports of U.S. goods to throw Trump a bone on his deficit. But no one believes that is even remotely possible given the fact that the private sector in China would have to be mandated to buy American, and non-American companies would complain to the World Trade Organization that they are being treated unfairly by the Chinese.

China cut its tariffs on U.S. soybeans and is increasing imports now, but the numbers are far from a big volume spike above historic norms.

Trump may have to go against the hawks in his cabinet , led by Lighthizer, who wishes to remap the American supply chain out of China and hamper the country’s climb up the high-tech ladder. In many tech segments, China is a serious rival to U.S. and European firms not just domestically (where they are often banned), but throughout Asia. The recent drama unfolding around Huawei executives in Canada and Poland have served to highlight distrust in Chinese tech companies. Washington policymakers are more apt to believe a company like Huawei got to be a Cisco Systems rival through stealing trade secrets and espionage.

Should Lighthizer make good on his threats to start hiking tariffs as early as March 2, it could put a damper on the November ceasefire agreement, which began in earnest in January and should technically go until April 1.

“The two sides may seek to suspend the punitive tariffs and make promises on other issues before March 1 so that the two sides can start to move to further negotiations on more technical issues,” Lu Xiang, a China-U.S. specialist with Chinese Academy of Social Sciences, told the South China Morning Post on Friday. “When the atmosphere improves, many things can be done.”

National Economic Advisor Larry Kudlow said the talks had a “good vibe” in an interview on Bloomberg Television on Friday. “We’re not ready to put things down on paper, we’re a ways from that frankly—much hard work still is in front of us—but nonetheless we did plow some new ground insofar as talking about specifics that the Chinese didn’t really want to talk about.”

Trump has touted twice now that a “great deal” with China was in the works. U.S. multinationals have been asking for some sort of bilateral trade agreement, but that does not seem to be in the offering.

Last week, some 60 different think tanks and trade associations supported a bill by Senators Pat Toomey (R-Pa.) and Mark Warner (D-Va.) to take one key trade issue out of Trump’s hands. They want to give Congress power of veto over tariffs, particularly when national security is used as a justification for adding extra duties to steel and aluminum tariffs.

“Tariffs on steel and aluminum imported into the United States are taxes paid by American consumers,” Toomey said in a statement on January 30. “The imposition of these taxes, under the false pretense of national security, is weakening our economy, threatening American jobs and eroding our credibility with other nations. I’ve seen, firsthand, the damage these taxes are causing across Pennsylvania,” he said.

Long before Trump, Congress had ceded its historic role of establishing tariffs and gave that authority to the executive branch. The Toomey-Warner bill would give Congress the responsibility to rule on tariffs only in the case of whether or not they are necessary as a national security matter.

The U.S. sees China as a strategic competitor, both in soft power and in economic power throughout Asia. This is especially true with the rise of Chinese tech and financial firms.

Many big Amazon sellers received a notice last week from WorldFirst, a London-based company acquired by billionaire Jack Ma’s firm Ant Financial. WorldFirst closed its U.S. business and said no new transactions would be allowed after January 30. Amazon sellers who spoke with CNBC speculated that the shutdown was directly related to Ant Financial. The company was banned from acquiring MoneyGram last year. Ant Financial runs Alipay, one of the most popular forms of mobile payments in China.

Should Trump and Xi not meet face to face this month, the threat to raise tariffs on $200 billion of Chinese goods from 10% to 25% will start to spook the market.

Wei Jianguo, a former vice minister of commerce and a researcher at the China Centre for International Economic Exchanges, said Trump and Xi might reach a surprisingly positive deal, at least to extend the truce. “The deal could be seen as a way out after more than a year of misunderstanding,” Wei told the South China Morning Post on Friday. “The deal should be better than expected.”
Source: Forbes

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