President Donald Trump declared on Sunday that there would be a delay in the increase in U.S. tariffs on Chinese goods. So far, the trade talks between him and China’s President Xi Jinping have been “productive.” In fact, there’s a hint that the Chinese President would seal a deal if this progress of the talks goes on.
On March 1, Trump, along with President Xi, is planning to meet at the president’s property in Florida called Mar-a-Lago in order to conduct a summit and hopefully conclude an agreement.
Previously, Trump’s plan was to raise tariffs on $200 billion worth of goods from China into the United States. The proposed raise was from 10 to 25 percent. Both countries, which are considered the two biggest economies of the world, are hoping to reach a reasonable agreement by Friday. Otherwise, the tariffs would push through.
After one week of talks that reached even the weekend, Trump agreed to defer the tariffs at an unspecified time temporarily. Trump himself said that there was progress in the negotiations even with intellectual property protection, services, currency, agriculture, and technology transfers.
State Councillor Wang Yi, the top diplomat of the Chinese government, told Beijing on Monday that the talks between President Xi and President Trump were able to make “substantive progress.” Thus, there were expectations from the Chinese Foreign Ministry regarding global economic development as well as stable bilateral ties between the US and China.
Xinhua News Agency, the official news agency of China, also announced that the goal of the agreement between the two countries was to get “get closer and closer.” Nonetheless, negotiations are expected to encounter a lot of obstacles when it reaches the final stages.
Xinhua said that there is still so much uncertainty since this is a long-term series of talks. Thus, there is a need to clearly recognize the complexity of the trade frictions that confront the two economies.
In order to negotiate a deal, both Presidents called for a 90-day truce in the latter part of 2018. The purpose was to come up with a good compromise. This win-win strategy is expected to bring stability to the Chinese economy while the United States could benefit from it with significant leverage.
The new deadline set by the president was not for the conclusion of the talks but for some really good news that everyone was hoping for after the negotiations. In fact, the announcement of the delay was a clear indication of China and the US nearing the end of their months-long trade war. In fact, this tariff war has led to a global slowdown and disruption of markets.
So far, there are no details from the White House on the level of progress that has been made. Thus, there is no conclusion as to whether the progress is indeed a major success or not. In fact, China expert Scott Kennedy, who works at the Center for Strategic and International Studies, believes that, so far, China is benefiting from all the extended negotiations.
More Work to Do
Based on the Reuters report on Wednesday, both the US and China were in the process of drafting MOUs or better known as memorandums of understanding. These documents are all about regulations on cyber theft, services, agriculture, intellectual property rights, and non-tariff obstacles to trade such as subsidies.
Robert Lighthizer, the US Trade Representative and sold Trump on MOUs. At first, Trump did not like MOUs which he thought were short-term. What Lighthizer did was to tell him that MOUs were considered binding contracts – just the very thing that Trump was looking for as the President was eyeing on long-term deals. After all, it is Lighthizer who is the key figure in pushing China to undergo structural reforms.
Lighthizer, who was described by Trump as having done a “fantastic” job, made Trump see things from a trade perspective. Earlier, Lighthizer said that he expected Trump to react like this because, as a former businessman from New York, Trump was more likely to view MOUs from the perspective of real estate.
It was Trump himself who was rather optimistic last Friday when he mentioned that “a good chance” would come out of the extended talks.
The negotiators from China stayed over the weekend so that both the US and China could discuss the idea of formulating a potential trade deal on Sunday. The agenda for Sunday would also include tariffs and commodities.
So far, negotiators from both sides have been trying to iron out differences when it comes to whether or not China should undergo structural changes in their trade and commerce. Negotiators have since wanted China to amend its methods of treating subsidies, state-owned enterprises, and cyber theft.
So far, Washington is demanding Beijing to strengthen enforcement mechanisms so that China can follow through its commitments toward reforms in its trade industry. However, Beijing countered such demands with what they believed as a process that was “fair and objective.” The issue of enforcement is one of the major agendas of the weekend talks.
In fact, markets that have suffered from the tariff wars between the US and China have experienced a reduction in global growth. These markets and other US trade associations have praised Trump for his recent move.
Tai Hui, a market strategist at the J.P. Morgan Asset Management, said that the extended talks and the postponed tariff hike were both indications that a settlement was in sight. Tai Hui added that the US would not benefit much from the tariff escalation.
Certainly, as Trump announced the talks, US equity index futures went up and stayed up the rest of the week. In the same way, the S&P 500 e-mini futures registered higher than Trump’s Twitter predictions. Asian shares went on a five-month high and the Australian dollar – seen as the proxy for Chinese investments – was lifted by 0.4 percent.
As Chinese stocks and the yuan soared high, the Shanghai Composite Index – its benchmark – increased by 2.1 percent. This was the highest it hit since August 1, while this was also the highest that the yuan hit against the dollar in seven months.
Trump is scheduled to leave for Vietnam on Monday to meet North Korean leader Kim Jong Un in a summit. So far, Trump has portrayed his dealings with Kim and China as key achievements in his presidency.