Only a month is left before the end of a trade war ceasefire between the U.S. and China, with top officials from the world’s two largest economies concluding another round of face-to-face talks in an effort to reach a deal that would resolve their months-long tariff tit-for-tat.
The two-day meeting was led by U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He at the Eisenhower Executive Office Building in the capital, where negotiators were focused on settling differences over China’s intellectual property practices. This afternoon, President Donald Trump also met with Liu in the Oval Office.
Early this month, mid-level discussions conducted by Deputy U.S. Trade Representative Jeffrey Gerrish and Chinese Vice Commerce Minister Wang Shouwen broached China’s imports of U.S. goods and opening up its markets to the West, as well as better protection of American intellectual property.
Those talks marked the first face-to-face assembly between Washington and Beijing since Trump and Chinese President Xi Jinping agreed to a 90-day financial truce at the G20 summit in early December.
Watch on FN
Washington has already imposed tariffs on $250 billion worth of Chinese imports, while Beijing retaliated with levies on $110 billion in U.S. goods. As part of the truce, the White House put on hold its threat to raise duties from 10 percent to 25 percent on $200 billion of those products.
Next Steps
The high-stakes trade discussions once again centered on U.S. demands for the structural transformation of the Chinese economy and China’s pledge to persuade state-owned companies to buy more U.S. products.
Today, Trump expressed optimism about hammering out a comprehensive trade accord with China. However, he reiterated the need to open Chinese markets broadly to U.S. firms, as well as sit down with Xi himself in the near future. Without meeting such conditions, Trump insists that no deal will be made.
“Meetings are going well with good intent and spirit on both sides,” he wrote on Twitter. “No final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult points…. China’s representatives and I are trying to do a complete deal, leaving NOTHING unresolved on the table.”
The Wall Street Journal reported that Chinese delegates suggested a meeting between the two leaders next month in the Chinese province of Hainan. Two White House officials told Reuters that the invitation was not proffered, adding that they would be surprised if such steps were taken during today’s meeting in Washington.
If the countries fail to reach a deal by the March 1 deadline, Trump has promised to go ahead with the planned tariff increase. In a Tuesday interview on Fox Business Network, U.S. Treasury Secretary Steven Mnuchin said that Washington would be open to lifting all tariffs if Beijing agrees to enough trade concessions.
Key Developments
The same day that Trump and Xi sat down to discuss trade at a formal dinner in Buenos Aires in December, Huawei Technologies Co. CFO Meng Wanzhou was arrested in China at the behest of U.S. authorities.
On Wednesday, as Chinese delegates prepared to face their U.S. counterparts in high-level talks, the U.S. Justice Department filed criminal charges against the Chinese telecom giant, alleging theft of trade secrets and bank fraud, and formally requested Meng’s extradition from Canada.
There remains speculation that legal action against Huawei could pressure China to surrender more in negotiations. The country’s foreign ministry this week accused the U.S. of “using national power to tarnish the image of and crack down on specific Chinese companies in an attempt to strangle their lawful and legitimate operations.”
“Behind such moves are deep political intentions and manipulations,” added spokesperson Geng Shuang.
However, senior members of the Trump administration have brushed off the timing of the trade talks and the Huawei investigation as coincidental.
“These indictments are law enforcement actions and are wholly separate from our trade negotiations with China,” U.S. Commerce Secretary Wilbur Ross said during a news conference on Monday.
Washington has previously spoken about Huawei’s threat to U.S. national security, with intelligence agencies warning Americans against using phones and other equipment from the company. It also claims that Meng assisted in Huawei’s circumvention of U.S. sanctions on Iran.
Trump has repeatedly claimed that China steals U.S. software and technology through cyberattacks and economic espionage. In response, Beijing called the allegations “slander” and “a distortion of facts.”
Industry Impact
According to the American Apparel & Footwear Association, 41 percent of clothing, 72 percent of shoes and 84 percent of accessories sold in the U.S. hails from China.
The most recent tranche of tariffs already affects clothing and accessories (including handbags and wallets), while the fourth set, which would hit $257 billion in goods, “can affect footwear pretty dramatically,” said Steve Lamar, EVP of the American Apparel & Footwear Association.
With the levies encompassing a wide variety of consumer products, experts predict retailers will have to raise prices for shoppers in order to accommodate soaring import costs. Walmart and J.C. Penney have already indicated that Trump’s tariffs would lead to higher numbers on stickers.
“It’s very difficult to see how [mounting tariffs] don’t negatively impact all Americans in every walk of life,” Matt Priest, president and CEO of the Footwear Distributors & Retailers of America, previously told FN. “The president claimed that trade wars are easy to win, but what our industry has always known is coming true: Trade wars are costly, unnecessary and do harm to the American economy.”
A number of companies, including Steve Madden and Skechers, have also considered relocating their factories from China, which could potentially disrupt their supply chains as well as affect shipping times and sourcing strategies.
“Companies will be looking to preserve their strength,” said AAFA president and CEO Rick Helfenbein. “They have loved working in China all these years, and they’re going to have to rearrange the dynamic or it will be disastrous.”
In recent years, rising wages in China have coaxed some businesses to transfer their production lines to cheaper shores such as Vietnam, yet China continues to flex its status as the world’s manufacturing powerhouse. (Government policies that support domestic assembly, along with a surplus of human capital, have allowed the country to thrive for decades.)
However, China has run into its own national troubles, as its vast manufacturing sector contracted for the first time in 19 months in December and its economic growth slowed to its weakest pace since the financial crisis. Trump is also likely feeling the urgency of settling his trade battle. Increasing uncertainty about a potential deal has dragged on global stock markets and created volatility on Wall Street, with the S&P 500 recording its worst December since the Great Depression. (The president called the steep sell-off a “little glitch.”)
