White House hails China trade truce as skeptics raise doubts

US Treasury Secretary Steve Mnuchin

The Trump administration is celebrating the 90-day truce it reached in its trade war with China as a significant breakthrough despite scant details, a hazy timetable and widespread skepticism that Beijing will yield to U.S. demands anytime soon. 

“This is just an enormous, enormous event,” Larry Kudlow, President Donald Trump’s top economic adviser, said yesterday [Macau time] of the cease-fire that Trump and President Xi Jingping reached over the weekend on the sidelines of an international economic summit in Buenos Aires, Argentina. “This one covers so much ground in some detail, we’ve never seen this before.”

Yet many economists raised doubts that very much could be achieved within three months.

“The actual amount of concrete progress made at this meeting appears to have been quite limited,” Alec Phillips and other economists at Goldman Sachs wrote in a research note.

During the talks in Buenos Aires, Trump agreed to delay a scheduled escalation in U.S. tariffs on many Chinese goods, from 10 percent to 25 percent, that had been set to take effect Jan. 1. Instead, the two sides are to negotiate over U.S. complaints about China’s trade practices, notably that it has used predatory tactics to try to achieve supremacy in technology. These practices, according to the administration and outside analysts, include stealing intellectual property and forcing companies to turn over technology to gain access to China’s market.

In return for the postponement in the higher U.S. tariffs, China agreed to step up its purchases of U.S. farm, energy and industrial goods, the White House said.

Most economists noted that the two countries remain far apart on the biggest areas of disagreement, which include Beijing’s subsidies for strategic Chinese industries, in addition to forced technology transfers and intellectual property theft.

“Ninety days is very little time to fix these perennial issues,” said Bill Adams, senior economist at PNC.

Complicating the challenge, Trump’s complaints strike at the heart of the Communist Party’s state-led economic model and its plans to elevate China to political and cultural leadership by creating global champions in robotics and other fields.

“It’s impossible for China to cancel its industry policies or major industry and technology development plans,” said economist Cui Fan of the University of International Business and Economics in Beijing.

At the same time, analysts said they were relieved that the Trump-Xi meeting at least pressed the “pause” button on tariff hikes. Besides escalating existing tariffs, Trump had threatened to impose import taxes on the remaining USD267 billion of U.S. goods from China. This would have raised prices in the United States on many consumer items, including smartphones, clothes and toys.

Fears of a hotter trade war had sent financial markets tumbling in October and November. But they jumped yesterday in response to Saturday’s truce. The Dow Jones industrial average closed up 288 points, a gain of 1.1 percent.

Megan Greene, chief economist at Manulife, said the market’s recent decline had likely contributed to Trump’s willingness to reach a truce.

“We are no longer in the same buoyant economic or markets environment that we enjoyed earlier this year when threats of tariffs against China were first made,” she said.

In the meantime, the outlines of the agreement remain hazy and in some cases confusing. Trump tweeted Monday that China had agreed to “reduce and remove” its 40 percent tariff on cars imported from the U.S. Treasury Secretary Steven Mnuchin said that there was a “specific agreement” on the auto tariffs.

Yet Kudlow said later that there was no “specific agreement” regarding auto trade, though he added, “We expect those tariffs to go to zero.”

Shares of U.S. and overseas auto companies rose on the announcement, though it’s unclear how much companies like GM or Ford will actually benefit. Nearly all the cars they sell in China are made there.

Details regarding China’s pledge to buy more American products — one that it has made before — remain scant. Mnuchin said on CNBC that China had offered to buy up to $1.2 trillion of additional U.S. goods, even while the “details of that still need to be negotiated.”

But Kudlow said the ultimate amount will depend on market prices and the health of China’s economy.

“I would think of that as a broad goal,” he said.

State-run Chinese media has described the agreement very differently from how the Trump administration has. It has made no mention of any changes to its auto tariffs. And it has said nothing about a 90-day deadline for the talks.

Greene said this might simply reflect China’s communications strategy. Or it might illustrate China’s weak commitment to the deal.

China agreed to eliminate the retaliatory tariffs it had placed on U.S. soybeans, according to the White House, which also said Beijing had agreed to buy an unspecified but “very substantial” amount of agricultural and other products. That left some U.S. farmers cautiously hopeful.

“This is the first positive news we’ve seen after months of downturned prices and halted shipments,” said John Heisdorffer, a farmer in Keota, Iowa, who is president of the American Soybean Association. “If this suspension of tariff increases leads to a longer-term agreement, it will be extremely positive for the soy industry.”

Kevin Scott, who farms near Valley Springs, South Dakota, and serves on the American Soybean Association, said the news provides hope for farmers who are storing their crops while awaiting better prices. But he cautioned that “it’s going to take a little more to move more beans.” Christopher Rugaber & Blake Nicholson, Washington, AP

Chinese response to Trump’s trade claims delayed by Xi’s absence

China’s government isn’t yet able to formulate its response to the summit on trade with U.S. President Donald Trump as senior officials are still out of the country with President Xi Jinping.

Bureaucrats from various ministries in Beijing are awaiting the return of Xi and his entourage of senior officials to China before they are able to comment or take action, according to three officials who were briefed but declined to be named as the matter isn’t public.

Xi is visiting Portugal today, the final stop in a global tour that has included Panama, Spain and the Group of 20 meeting in Argentina – where he and Trump struck a temporary truce in a bid to contain their trade war.

As a number of actions by China to prevent the imposition of higher tariffs by the U.S. have yet to be confirmed by Beijing and were only reported by the U.S. side, the status of the accord remains in doubt.

In particular, Trump’s late-night tweet on China’s willingness to cut tariffs on cars coming in from the U.S. moved automobile stocks across the globe, but has yet to be confirmed or denied by Beijing. Trump officials have also scrambled to explain it.

The U.S. and China emphasized different results from the high-stakes meeting between Trump and Xi, with the split highlighting how much of a gap needs to be overcome over the next three months. For example, Chinese official statements on the meeting did not include mention of the 90-day deadline or a requirement that the nation begins buying more U.S. farm, energy and other products.

Geng Shuang, a spokesman for China’s foreign ministry, yesterday declined to comment further on the outcome of the Trump- Xi talks while reiterating that teams from both sides would follow through with more negotiations. China’s commerce and finance ministries didn’t immediately respond to requests for comment.

Monday’s stock market rally has faded as uncertainty over the status of the deal set in. Stocks fell in Japan, Korea and Australia and fluctuated in China after media appearances Monday with Trump administration officials shed little light on the specifics of how Sino- American trade negotiations will progress.

Xi has bookended his trip to Argentina with his first official visits to Spain and Portugal in years in a bid to expand China’s diplomatic links with the two southern European nations. Bloomberg

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