Facing a March 1 deadline before tariffs on some $200 billion in Chinese imports rise, Chinese and U.S. negotiators held high level talks Thursday and Friday in Washington D.C. The discussions come amid signs of progress on resolving some issues in the seven-month trade dispute.
At the least, President Donald Trump on Wednesday indicated that the March 1 deadline was “not a magical date,” implying it could be extended.
Sources also told Reuters and Bloomberg this week that China and the U.S. are drawing up a six-point memorandum of understanding covering issues including forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade. The outline agreement reportedly includes a list of 10 commodities and goods that Beijing will agree to buy from the U.S.
Sources told Reuters that while there are disagreements on “core demands,” the two sides agreed on a path to fulfill one of Trump’s primary campaign goals of narrowing the trade deficit by getting China to buy more American products.
The outline was developed in meetings between the two sides the prior week in Beijing. Forging a preliminary deal would avert the more than doubling of tariffs on select imports from the Asian nation on March 1.
“It can be said that we are now in the sprint phase, and both negotiating teams are working towards the goal of reaching an agreement within the deadline, but some problems are still quite complicated to resolve,” one Chinese official familiar with the situation told Reuters.
Indeed, numerous reports indicate that the U.S. and China remain far apart on demands made by the Trump administration for structural changes to China’s economy.
China is proposing that it could buy an additional $30 billion a year of U.S. agricultural products including soybeans, corn and wheat, according to reports. China’s recent offers have also included buying $200 billion of American semiconductors over the next six years, in addition to more crude oil and natural gas.
In return for buying more American products, China has asked Trump not to follow through on his threat to increase tariffs to 25 percent from 10 percent on March 1 and possibly remove those tariffs entirely. China is also pushing the U.S. to remove restrictions on exports of high-tech products to China as well as constraints on Chinese investments in the U.S.
One thorny issue continues to be U.S. access to China’s marketplace. The U.S has vexed that industrial subsidies, regulations, business licensing procedures, product standards reviews and other practices have kept U.S. goods and companies out of China or given an unfair advantage to domestic firms.
China has reiterated promises to allow foreign car companies and banks freer access to the Chinese market. But a variety of regulatory barriers and licensing requirements continue to prevent foreign companies from operating freely, according to reports
Gaining concessions on the breaks China provides state enterprises is seen as a huge hurdle for U.S. negotiations. Chinese negotiators have offered to stop providing government subsidies that distort prices, but they haven’t so far produced a list of subsidies they would be willing to eliminate. The U.S. is also seeking to eliminate foreign-ownership limits in sectors such as autos and financial services, but China wants to give domestic firms, especially state-owned ones, more time to prepare for the changes.
The two sides are also reportedly deadlocked over Beijing’s alleged violations of intellectual-property rights.
The U.S. has accused Beijing of forcing U.S. companies doing business in China to share their technology with local partners and hand over intellectual property secrets. China has denied it engages in such practices. Any U.S. proposal that could derail China’s ambition to rank among the world’s technology leaders under its “Made in China 2025” initiative is also likely to be rejected by Beijing. Indeed, The Financial Times said that “external pressure — especially the threat of sanctions from the US on key technologies and industrial products — will push Beijing to pour more capital and administrative resources into boosting technological upgrades and self-sufficiency across the most strategic industries.”
On currency, the U.S. has warned China against devaluing its yuan to gain a competitive advantage after the Chinese currency weakened significantly against the dollar last year, partly to counteract Trump’s tariffs. Encouraging China to manage its currency, however, would go against the policy of past U.S. administrations that the value of China’s currency should follow market forces.
Finally, the U.S. is seeking guarantees that any measures will be enforced and a means to resolve disputes. China has often reneged on promises to past administrations. A process that would allow tariffs to kick back in if the Chinese are found to have reneged on a commitment is being considered.
Negotiators are working to meet Trump’s March 1 deadline for an agreement to avert an increase, from 10 percent to 25 percent, in the tariffs the U.S. imposed last year on $200 billion in Chinese products. Trump and Chinese President Xi Jinping agreed during a December 1 meeting in Buenos Aires to observe a 90-day truce in the trade battle between the world’s two largest economies.
The $200 billion in goods included certain sports products, such as backpacks, sports bags, leather ski gloves, camp stoves, camp chairs, bikes and bicycle parts. Another round of $267 billion in tariffs that would likely include apparel and footwear was also put on hold to support further negotiations.
China’s economy has slowed amid the trade war and a setback in negotiations could undermine global markets as concerns grow that the bilateral tensions are hurting world trade. Shipping giant Maersk said Thursday that profit will fall short of expectations and the outlook for this year is bleak, while South Korea and Japan have reported declines in exports.
In an interview Thursday on CNBC, Rick Helfenbein, president and CEO of the American Apparel & Footwear Association (AAFA), said U.S. apparel and footwear firms continue to reduce their souring exposure to China due largely to uncertainty.
“They’re scared,” said Helfenbein. “They don’t know what’s going to happen. We can’t rely on governments at this point to tell us what our business future should be.”
He noted many of the U.S.’s top apparel and footwear firms are public and exposure to China is a high concern for the investor community. Finally, he said the footwear and apparel is already a “heavily-taxed industry” and any additional tariffs would be “panic hitting a new high.”
The apparel and footwear industry represents 6 percent of all imports to the U.S. but the industry currently pays 51 percent of the duties collected by the U.S. government, according to the AAFA.
Overall, 97 percent of U.S. apparel is imported with 41 percent coming from China, according to the AAFA. Exposure in other categories is even higher with 72 percent of footwear coming from China and 84 percent of accessories (i.e., handbags, backpacks).
Helfenbein expects prices of apparel and footwear to increase this year regardless of the trade negotiations because companies are facing limited sourcing options outside China. Even apparel, just five countries – Vietnam, Bangladesh, Indonesia, India as well as China – make up 70 percent of production worldwide.
Said Helfenbein, “We don’t have a lot of choices when we vacate China. Prices will go up and you will be seeing that starting in March, whether there’s an agreement or no agreement. We have now successfully as a country cooked inflation.”
