NEW YORK/LONDON: The resumption of talks on Monday between the United States and China on tariffs helped bring back optimism to a market battered in recent weeks by trade tensions and a weakening global growth outlook. Other factors supporting the newly breaking cheer are a set of strong employment data in the United States, China’s central banks easing on lending and dovish messages from US Federal Reserve chief Jerome Powell that pushed world stocks further off recent lows on Monday.
The world’s two biggest economies are battling over US allegations that Beijing uses predatory tactics to acquire advanced technologies, potentially undermining American technological dominance.
The US-China talks are the first face-to-face interactions between the countries since both presidents met in Argentina last year and agreed a temporary truce in their tit-for-tat tariff war. More senior-level discussions are expected later this month, with Trump and Chinese Vice-President Wang Qishan possibly meeting at the World Economic Forum in Davos, Switzerland.
If the two-day talks are constructive, a senior-level delegation of Chinese officials is expected to travel to Washington within a few weeks.
The question analysts are pondering over is whether the standoff will be resolved before the March 1 deadline. That is when US tariffs on $200 billion (Dh734 billion) in Chinese imports are scheduled to jump to 25 per cent from 10 per cent. Chinese leaders have signalled their willingness to address US complaints about America’s massive trade deficit with China by buying more soybeans, natural gas and other US products.
But they are likely to resist pressure from Washington to scrap or scale back technology policies they see as vital to China’s future prosperity and strength.
The row was a key factor behind the big losses on global markets last year and any move to bring it to an end will be cheered on trading floors.
Trump on Friday raised hopes for an agreement, saying: “I think we will make a deal with China.”
The upbeat mood gave a lift to high-yielding currencies, with South Korea’s won and the Indonesian rupiah soaring against the dollar, while there were also healthy gains for Australia’s dollar. Hong Kong and Shanghai stocks also enjoyed another day of gains on Monday. Oil was also benefitting, with both contracts up more than one percent thanks to the wave of positive headlines.
Why are the US-China trade talks so crucial to market behaviour?
As the world’s two largest economies, the US-China trade is the biggest trade tie-up in the world and the global economy rests more heavily on these two giant economic partners for its interlocking trade and investment opportunities and spin-offs than on any other trade patterns elsewhere in the world. So, any dispute or conflict between US and China leads to tangible impact on prices and markets in other parts of the world.
What are the talks about?
The two sides agreed to hold “positive and constructive” dialogue to resolve economic and trade disputes in accordance with the consensus reached by the countries’ leaders, Foreign Ministry spokesman Lu Kang told reporters at a regular news briefing.
“From the beginning we have believed that China-US trade friction is not a positive situation for either country or the world economy. China has the good faith, on the basis of mutual respect and equality, to resolve the bilateral trade frictions,” Lu said.
Trump imposed import tariffs on hundreds of billions of dollars of Chinese goods last year and has threatened more to pressure Beijing to change its practices on issues ranging from industrial subsidies to intellectual property to hacking. China has retaliated with tariffs of its own.
“As for whether the Chinese economy is good or not, I have already explained this. China’s development has ample tenacity and huge potential,” Lu said. “We have firm confidence in the strong long-term fundamentals of the Chinese economy.” Lu also said that Vice Tu Xinquan, a Chinese trade expert at Beijing’s University of International Business and Economics, said before talks began that the meetings would likely focus on technical issues and leave major disagreements to more senior officials.
“China’s economy is significantly slowing down, and the US stock market is declining quickly. I think the two sides need some kind of agreement for now,” Tu said.
WHAT ARE EXPERTS SAYING?
“The balance of leverage appeared to have shifted in favour of the US, with signs that China’s economy was slowing down, but the stock market rout and concerns about a US growth slowdown have restored a more even balance between the two sides. Still, it will be tough sledding for the US and China to reach a deal that is acceptable to both sides. The best that can be hoped for is a cessation of further trade hostilities, with the trade sanctions already implemented by both sides likely to remain in place.”— Eswar Prasad, a trade expert at Cornell University.
“If they [Chinese] are true to past history of negotiations, they will make a credible but minimal offer.” — Mike Pillsbury, China expert at the Hudson Institute who advises the Trump administration
A US delegation has midlevel trade officials engaged in two days of talks with their Chinese counterparts in Beijing.
The US side is led by Jeffrey Gerrish, deputy US trade representative, and David Malpass, the Treasury Department’s undersecretary for international affairs.
From China’a side, Chinese Vice Premier Liu He attended the first day of talks, according to reports.
Liu is the top economic adviser to Chinese President Xi Jinping
Liu’s participation in the meeting, held at the ministry’s premises, signals that China is attaching high importance to the talks, even if the main participants this time are mid-level officials and mostly technical in nature.