US-China Trade Negotiations Have Collapsed

High-level trade negotiations between Beijing and Washington have “ground to a halt” following Trump’s dramatic escalation proposing an additional $200 billion in tariffs on Chinese goods, Bloomberg reports.

After three rounds of formal negotiations led by Commerce Secretary Wilbur Ross and Treasury Secretary Steven Mnuchin, communications between senior members of the Trump and Xi administrations have collapsed – with no immediate plans to restart formal talks.

The diplomatic impasse makes it unlikely the two countries will stand down anytime soon from an intensifying trade war that is roiling financial markets and threatening the broadest global upswing in years. The Trump administration on Tuesday released a proposed list of an additional $200 billion in Chinese goods to be hit with tariffs. China’s Commerce Ministry said the tariffs, which cover everything from refrigerators to handbags, are “totally unacceptable.” –Bloomberg

And while the two countries have continued to engage in informal dialogue among lower-level bureaucrats, Washington and Beijing have around seven weeks to strike a deal or risk a trade war that would be incredibly disruptive to corporate supply chains – stoking fears over increased prices for consumers.

“It’s extremely important that when two governments get into this kind of situation with each other that even if they are fighting on the official front, that they have something going on in the background that enables them at some point to declare a sort of ceasefire,” National Foreign Trade Council president Rufus Yerxa in a Bloomberg TV interview on Wednesday. “For the time being the two sides aren’t going to acknowledge that. They’re positioning themselves for the end game.”

Despite the flare-up in tensions amid the $200 billion tariff proposal, President Trump has continued to emphasize his personal friendship with President Xi Jinping – while the Trump administration has been signaling that they would like to re-engage China at the “top level,” according to Bloomberg. 

That said, frustration continues to mount. 

there are growing signs of frustration on both sides. On a conference call with reporters Tuesday, senior Trump administration officials argued that China started the conflict with unfair trading practices and abuse of U.S. intellectual property. One of the officials said the U.S. has repeatedly made its concerns clear and continues to hope for a negotiated solution, but Beijing hasn’t changed its behavior. –Bloomberg

Mixed signals

Ongoing tensions between Steve Mnuchin and Wilbur Ross have complicated matters and resulted in mixed messages, according to Bloomberg‘s sources. 

As the de facto spokesman on economic matters within the cabinet, Mnuchin took the lead early in the negotiations. But at different points in the talks, other more hawkish members of the administration have taken the helm, such Ross, which has confused the Chinese. –Bloomberg

President Trump is also said to have grown frustrated with China’s reluctance to come to the table with more concessions – particularly after the United States reversed a decision to impose harsh restrictions on Chinese telecom-equipment manufacturer ZTE Corp., according to a White House official who did not want to be identified. 

Trump also doesn’t think China has been very helpful with regards to encouraging North Korea to abandon their nuclear weapons program. 

“We agreed to the denuclearization of North Korea,” Trump tweeted on Monday. “China, on the other hand, may be exerting negative pressure on a deal because of our posture on Chinese Trade-Hope Not!”

I have confidence that Kim Jong Un will honor the contract we signed &, even more importantly, our handshake. We agreed to the denuclearization of North Korea. China, on the other hand, may be exerting negative pressure on a deal because of our posture on Chinese Trade-Hope Not!

— Donald J. Trump (@realDonaldTrump) July 9, 2018

Meanwhile, Chuck Grassley (R-IA) has a “great deal of concern” about the friction with China – and in particular, the uncertainty it’s creating among Iowa farmers and businesses. Soy futures, a target long expected for China’s retaliation, have fallen around 16% since the end of May making life for US farmers especially painful.