The truce between EE. UU And China can be fleeting as tensions lengthen

The economic truce recently declared between the United States. UU And China will be temporary if the two largest economies in the world do not meet the vague commitments to rebalance trade.

"We are putting the commercial war on hold" Treasury Secretary Steven Mnuchin said Sunday. "At this time, we have agreed to leave tariffs on hold while we execute the framework."

Photographer: Patrick T. Fallon / Bloomberg

President Donald Trump had threatened to impose tariffs of up to $ 150 billion on Chinese imports, while Beijing promised to respond in kind. For now, Mnuchin's ceasefire statement will calm the nerves of investors worried that the two largest economies in the world are on the verge of a total trade conflict.

The United States and China released a joint statement on Saturday, after two days of meetings in Washington between Chinese Vice Premier Liu He and senior US officials, including Trump.

The statement was "little more than a brief reduction in tensions," said Eswar Prasad, professor of trade policy at Cornell. University and former head of the China unit of the IMF. "The fundamental differences in trade and other economic issues remain unresolved."

Asian stock markets rose on Monday as the future of US stocks jumped after news that the Sino-US trade war is suspended for the time being. Yields on Treasuries rose a bit, taking the dollar with them.

Read more about trade negotiations:

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Investors Encourage the commercial truce between the United States and China as Stock Futures Rally
China-USA UU Trade Relations Heading Back to the 90s: Credit Suisse
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Unsolved Problems

China and the US UU They agreed to reduce "substantially" the US trade deficit in goods with China. Beijing promised to "significantly" increase purchases of goods and services from the US. UU But there was no dollar figure attached, despite White House badurances that Beijing would give in to its demand for an annual $ 200 billion reduction in the goods deficit.

Trump has an important strategic reason for eliminating the tariff threat against China: it needs Beijing's cooperation as it prepares for a historic summit with North Korean leader Kim Jong Un in June. It is hard to imagine a peace agreement with North Korea without the participation of China, Kim's most important political and economic ally. [19659018] China's rhetoric

However, if the trade talks with China fail, the president may soon feel the pressure to repress again, especially with the mid-term legislative elections looming in November. In their efforts to save the party's majorities in the House and the Senate, Republicans will rely heavily on the Trump brand, which he built with the promise of helping the working clbad in states like Ohio and Pennsylvania, where the fiery rhetoric of Trump over China resonated with voters. 19659002] "As this process continues, the United States can use all of its legal tools to protect our technology through tariffs, investment restrictions and export regulations," US Trade Representative Robert Lighthizer said in a statement. "Real structural change is necessary: ​​nothing less than the future of tens of millions of jobs in the United States is at stake."

Trump remains concerned about a singular measure, the US trade deficit. UU., Which will be difficult to contract in the short term. It is not clear how Beijing will increase the purchase of US products, although the single-party state exercises more control than most governments over corporate spending decisions.

Even if China dramatically increased its purchases of American products, that does not reduce the appetite of American consumers for imports from China. Republican tax cuts and spending increases will inject a fiscal stimulus into the US economy. UU That will feed the demand for products manufactured abroad.

Economists say it will be difficult to reduce trade imbalance between the two nations without deep reforms that change the way they save and invest China has shown little inclination towards a sudden opening of its economy, which depends largely on intervention state and exports for growth.

It is "difficult to contemplate" how the two countries could reduce their trade imbalance by $ 200 billion, said Victor Shih, a professor at the University of California at San Diego who studies China's politics and finances.

"Even with a drastic reallocation of Chinese imports of energy, raw materials and aircraft in favor of the US, the bilateral trade deficit can be reduced by $ 100 billion," Shih said. "A reduction of $ 200 billion would mean a drastic reduction in Chinese exports to the US and a dramatic restructuring of the supply chain."

Deal or No Deal: Can China reduce the US deficit by $ 200 billion?

a positive turn in the outcome of the talks, citing an interview with Liu in Washington on Saturday in which he said the two sides "agreed not to launch a trade war and stop slapped tariffs on each other," the agency reported. Xinhua news. The United States will be able to reduce its trade deficit, while China can guarantee a constant supply of goods it needs to develop and improve lives, the Global Times wrote in an editorial on Sunday.

Export curbs

The White House does not appear to have convinced China to accept export quotas, as Japan did in the 1980s when President Ronald Reagan carried out a strategy of "managed trade". The United States forced allies such as South Korea to accept steel quotas and pressure others, including the European Union, to do the same for their metal sales. Avoiding similar restrictions would be a victory for Chinese President Xi Jinping.

US UU They have also made little progress in forcing China to respect US intellectual property: the problem that caused the US. UU Threats will threaten in the first place. In March, Trump officials concluded that Beijing violated US intellectual property laws in various ways, including forcing US companies to transfer technology.

During hearings held in Washington last week on proposed tariffs, US companies warned of imposing tariffs on Chinese imports. But many agreed that the United States should take bolder measures to prevent China from violating intellectual property rights.

Patent Law

The joint statement this weekend said only that both parties "attach great importance to intellectual property protections" and agreed to cooperate more. China will change its laws and regulations in this area, including its patent law, according to the statement.

The statement did not mention the additional demands of EE. UU., Including the suspension of subsidies and other government support for the Made in China 2025 plan that targets strategic industries, from robotics to new energy vehicles.

Chinese telecoms maker ZTE Corp., which faces a death sentence after it was cut off from US suppliers for allegedly lying to the US government after circumventing the sanctions, was also not mentioned. Trump drew attention last week when he ordered officials to extend the lifeline to the company.


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