US, China Release Statement Pledging to Tackle Trade Deficit, Boost Investment
Chinese and American negotiators issued a statement last weekend pledging to increase US exports to China, among other steps aimed at boosting trade and investment cooperation, which officials later said would avert planned “Section 301” tariffs that Washington was preparing to levy on Beijing. The statement also refers to “consensus” on acting to reduce the trade deficit that the US runs with China, with more details forthcoming.
US Secretary of the Treasury Steven Mnuchin announced on Sunday that proposed tariffs on Chinese imports had been paused. The tariffs at issue were part of various planned actions that Washington planned to take following a “Section 301” investigation into alleged intellectual property rights violations and forced technology transfers.
“Right now we have agreed to put the tariffs on hold while we try to execute the framework,” he said in an interview with Fox News. Mnuchin later confirmed to lawmakers that the decision does not affect a separate set of steel and aluminium tariffs that the US has imposed on most countries, including China.
The prospect of the Section 301 tariffs had prompted China to prepare to levy duties of its own. Vice Premier Liu He, who led the Chinese delegation, told state media channels that the countries agreed to “stop slapping tariffs against each other,” according to comments reported by Xinhua.
Export, investment boost planned, details unclear
The joint statement that Washington and Beijing released on 19 May includes pledges to increase US agriculture and energy exports, boost two-way investment, expand trade in manufactured goods and services, and strengthen intellectual property cooperation, without going into specific detail in terms of targets or timeframe.
“Both sides agreed to continue to engage at high levels on these issues and to seek to resolve their economic and trade concerns in a proactive manner,” the statement concluded.
US Secretary of Commerce Wilbur Ross will reportedly lead an additional round of talks in Beijing next week to work out the details of the agreement. The consultations build on discussions initiated when Ross together with Mnuchin, White House economic advisor Larry Kudlow, and US Trade Representative (USTR) Robert Lighthizer travelled to Beijing earlier this month. (See Bridges Weekly, 9 May 2018)
“It is natural for the two countries to reach consensuses this time,” Liu said. “However, it should be noted that it takes time to resolve the structural problems in the bilateral economic and trade ties,” he said, adding that the two countries should address their differences through dialogue and avoid exacerbating tensions in the future.
The goods trade deficit between the two countries was estimated in 2016 at US$347 billion, according to USTR statistics, and even higher last year, though the US has a surplus of US$38 billion in services.
The announcement comes following months of escalating trade tensions. In March, the US announced that it would impose global tariffs on imported steel and aluminium on national security grounds, negotiating with certain countries to provide exemptions. Citing intellectual property concerns, Washington separately announced plans to impose tariffs on a list of Chinese products worth at least US$50 billion, after the findings of the above-mentioned “Section 301” investigation, and is weighing possible restrictions on Chinese investment. (See Bridges Weekly, 22 March 2018)
In April, China countered with an announcement that it would be imposing duties on a catalogue of 106 American goods, targeting agricultural products and manufactured goods including beef, soybeans, corn, wheat, cars, chemicals, and whiskey.
Terms of agreement
As the latest round of US-China talks wrapped up, the two sides agreed to take “effective measures” to reduce “substantially” the US trade deficit in goods with China, without elaborating further on details in the joint statement.
China further pledged to buy “significantly” more American goods and services. This announcement was framed in the statement as a win-win, creating jobs and supporting growth in the US while also serving “to meet the growing consumptions needs of the Chinese people and the need for high-quality economic development.”
However, the joint statement made no explicit reference to the US$200 billion reduction in the trade gap by 2020 sought by the US in demands exchanged in the first round of high-level talks.
The statement also promises “meaningful increases” in American agriculture and energy exports, resolving to hammer out the specifics in later discussions.
“We expect to see a very big increase, 35 to 45 percent increases in agriculture this year alone,” Mnuchin told Fox News on Sunday, adding that follow-up discussions will involve “very hard commitments in agriculture.”
“In energy, [it involves] doubling the energy purchases,” he added. “I think you could see US$50-60 billion a year of energy purchases over the next three to five years.”
“China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products - would be one of the best things to happen to our farmers in many years!” US President Donald Trump wrote on Twitter on Monday, adding, “Under our potential deal with China, they will purchase from our Great American Farmers practically as much as our Farmers can produce.”
Last year, US agricultural exports to China reached US$19.6 billion, the second largest destination globally.
Beijing separately announced on Friday that it would close an ongoing anti-dumping probe into imports of US sorghum. Dumping refers to the practice of selling goods abroad at prices below their normal value.
“The imposition of anti-dumping and anti-subsidy measures on imports of sorghum originating from the United States would have a widespread impact on consumer living costs, and does not accord with the public interest,” the Chinese Ministry of Commerce said in an official statement issued last week.
The joint US-China statement also contained a commitment to improve cooperation around intellectual property, seeking to address the complaints behind Washington’s planned “Section 301” actions.
“Both sides attach paramount importance to intellectual property protections,” the statement reads, stating that China has agreed to carry out domestic reforms, promising amendments to relevant laws and regulations, including its Patent Law.
The statement also included language on expanding bilateral investment flows, fostering a “fair” environment for competition, and growing trade in services and manufactured goods.
“The two sides will enhance their trade cooperation in such areas as energy, agriculture products, health care, high-tech products, and finance,” Liu said. “Such cooperation is a win-win choice as it can promote the high-quality development of the Chinese economy, meet the people's needs, and contribute to the US effort to reduce its trade deficit.”
However, many items raised in earlier wish lists remained unaddressed in the agreement. The statement did not make any mention of the US request for a suspension of government support for the advanced technology sector under the Made in China 2025 industrial plan.
In addition, Beijing had sought a change in Washington’s restrictions on Chinese telecommunications giant ZTE, which had been implemented after the firm allegedly violated US sanctions on Iran and North Korea. (See Bridges Weekly, 17 May 2018)
Though not referred to in the statement, Mnuchin announced on Sunday that the US will be revisiting the ban on selling US components to ZTE, adding that the position on ZTE is “completely independent” of the trade consultations.
Furthermore, the agreement did not touch upon pending US restrictions on Chinese investment, though some reports suggest that these may also be put on hold. A list of possible executive actions on investment was due to be announced by the US Treasury Department this week, but it is unclear whether Washington will follow through in light of the agreement announced in Beijing.
ICTSD reporting; “Trade war fears ebb as U.S., China agree to continue talks,” REUTERS, 21 May 2018; “US at odds with itself over goals of China trade talks,” FINANCIAL TIMES, 21 May 2018; “US and China put trade war ‘on hold’,” THE GUARDIAN, 20 May 2018; “Chinese vice premier says China, U.S. agree not to engage in trade war,” XINHUA, 20 May 2018; “Why the U.S.-China Trade Truce May Not Last,” BLOOMBERG, 21 May 2018; “‘It’s not over yet’: key sticking points remain for US and China on trade, analysts say,” SOUTH CHINA MORNING POST, 28 March 2018; “U.S. Putting ‘Trade War’ Against China on Hold, Mnuchin Says,” BLOOMBERG, 21 May 2018.