US and Chinese officials held their first face-to-face negotiations since a 90-day truce was declared in a trade war between Washington and Beijing, in the hope of ending a bruising confrontation between the world’s two largest economies.
Hopes that the sixth round of negotiations between the two sides could yield a breakthrough helped Asian shares rise on Monday, combined with optimism about the state of the global economy on the back of strong US jobs figures on Friday.
In Tokyo, the Nikkei soared more than 3% and there were also strong positive moves in Shanghai, Hong Kong and Sydney.
Talks among mid-level US and Chinese trade representatives were scheduled for Monday and Tuesday. Chinese vice-premier and economic czar Liu He unexpectedly attended the talks, according to Bloomberg, citing unnamed sources.
After failing to reach an agreement in December when Donald Trump and Xi Jinping met, both sides agreed to suspend tariff increases while holding discussions on technology transfers, as well as intellectual property theft and cybersecurity. If no agreement is reached, US tariffs on $200bn (£160bn) of Chinese goods will increase in March to 25% from the current 10%.
Trump said on Sunday that China was under pressure to do a deal amid signs of a slowdown in its economy. “I think China wants to get it resolved. Their economy’s not doing well. I think that gives them a great incentive to negotiate,” he said.
Analysts believe the talks were unlikely to produce a major breakthrough but will lay important groundwork for an agreement that both sides appear increasingly eager to reach.
“The situation now is that both sides are facing some economic problems. China is facing an export pressure and a likely economic downturn. The US is facing a falling stock market. Thus, both sides are willing to talk and are expecting a deal,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing. “I think it’s possible to reach a deal before March if both sides talk and move fast,” he said.
China’s leaders in particular are under pressure to end a trade war that is exacerbating an already slowing Chinese economy in which exports, factory output, and consumer confidence have all declined.
“China’s slowdown is occurring across the board, affecting almost every industry and region,” said Scott Kennedy, a trade expert focused on China at the Center for Strategic and International Studies. “Resolving the trade war or at least finding some common ground with Washington will be needed to fully restore confidence,” he said.
The delegation, led by the US deputy trade representative, Jeffrey Gerrish, does not include any top US officials from the administration, a sign the talks will be a precursor to higher-level meetings.
Chinese vice-premier Liu He, may travel to Washington in February and Trump may meet the Chinese vice-president, Wang Qishan, at the World Economic Forum in Davos near the end of this month, according to reports.
The US delegation includes officials from the Treasury, and energy and agriculture departments, as well as the State Department and the White House, according to the Office of the United States Trade Representative.
“It promises to be the first time that the core of the agenda will centre around the problems caused by Chinese industrial policy and the need to marketise China’s economy,” said Kennedy.
“If they can make sufficient progress on identifying the key issues and narrowing in on the possible solutions, that will pave the way for Chinese vice-premier Liu He to visit Washington in the coming weeks,” he added.
Key US exports including soya beans, corn and pork, as well as liquefied natural gas, are currently subject to retaliatory tariffs from China. China’s industrial policy, “Made in China 2025”, which the US argues violates World Trade Organization rules, is likely to be a topic of discussion.
China is likely to raise the issue of the telecoms firm Huawei, whose global ambitions have been thwarted by a US ban on its products. The arrest in Canada of a senior Huawei official, Meng Wanzhou, at the request of the US has spiralled into a diplomatic incident, which includes two Canadians still detained in China.
Gerrish, the head of the US delegation, is likely to follow the lead of the US trade representative, Robert Lighthizer, one of the most hawkish members of the Trump administration. Gerrish has previously described Lighthizer as one of his “incredible mentors”.
Observers say that beyond reaching an agreement, a major sticking point will be over how to confirm that both sides uphold it. Chinese officials have reportedly indicated a willingness to establish such a mechanism.
“The big issue is not just that an agreement is reached, but verifiability – that China is living up to their end of the bargain,” said Christopher Balding, a former associate professor of business and economics at the HSBC business school in Shenzhen, who writes about the Chinese economy.
In recent weeks, Beijing has made some conciliatory gestures, including drafting new rules that would ban forced technology transfers. China has promised to buy more US goods as well as cut tariffs, and improve market access for foreign companies in China.
Still, these concessions and economic pressures both sides face may not be enough to bring both sides to a deal.
“The US is very wary of Chinese changes as simply being paper reforms that change little on the ground. That perception will be very difficult to overcome,” said Roland Rajah, the director of the international economy programme at the Lowy Institute in Sydney. He said that any agreement is likely to be framed as part of ongoing negotiations, with the threat of tariffs kept in place.
He said: “The broader relationship has been deteriorating quite rapidly, meaning neither side want to cave in too much on the substantive issues as they see it as part of a broader and longer term strategic battle.”
By Lily Kuo