MNI: Beijing Targets Trump Visit, Sees Limited Deal - Advisors

China-U.S. trade talks in Madrid this week are likely to make little substantive progress, but subsequent negotiations could still pave the way for a limited deal including increased Chinese purchases of U.S. energy and agricultural products which could be signed off by presidents Donald Trump and Xi Jinping in a meeting before the end of the year, Chinese policy advisors told MNI.

Both the U.S. and China are doubling down on their positions during the Sept 14-17 talks in Spain, a former Chinese official told MNI, noting how China’s Ministry of Commerce launched discrimination and dumping probes into U.S. chips on Saturday in response to last week’s U.S. move to add 32 Chinese entities to its export control list. 

An immediate focus of the talks is Wednesday’s time limit for a deal to sell a controlling interest in Chinese video-sharing app TikTok, but the Chinese expect Trump to grant a fourth extension to the deadline, the unnamed former official said. The U.S. is also pushing for China to commit to soybean purchases, but China will insist on reducing tariffs as a prerequisite, particularly the 20% levy tied to exports of chemicals used to make fentanyl, the former official said.

“[The Madrid talks] are more about laying the groundwork for a leaders’ meeting during the APEC summit end-October, or even a possible Trump visit to China this year,” the former official said. If Trump accepts an invitation to visit Beijing, it would indicate a deal was likely to be signed, which could include Chinese promises to purchase over USD100 billion more of American products per year over the next two to three years, he continued.

NO HURRY

But China is in no hurry to reach an agreement, the former official said, noting that it shares common ground with many other countries in opposing U.S. tariffs, including India.

Chinese officials may calculate that Trump would prefer a limited deal, which provides a quick political boost, and may be little interested in a more comprehensive agreement, said Tang Yao, associate professor at Peking University’s Guanghua School of Management. While commitments to purchase American products could pave the way for Trump and Xi to meet this year, removing the 20% fentanyl levy may prove difficult, given that China sees little incentive to make non-reciprocal concessions given the resilience of its exports to non-U.S. markets, Tang said. (See MNI INTERVIEW2:China Needs Caution Over Quick Trump Deal - Liu)

“China might be willing to accept a prolonged negotiating process, which is also a strategy to buy time for its own technology development,” said Tang, noting that the U.S. will be unable to replace China as a source of rare earths for at least three to five years and that tariffs higher than the current 50% would make no economic sense.

LIMITED DEAL

While an eventual U.S.-China agreement would be unlikely to lead to a complete rollback of limits on Chinese exports, it could include commitments for China to gradually reduce excess industrial capacity and subsidies, and to allow for fair competition in its markets, which would be broadly consistent with the existing direction of the country’s economic reforms, said the former official, noting China would also want a reduction in the number of its companies on U.S. blacklists.

Zhou Xiaoming, former deputy permanent representative of China’s Mission to the UN Office in Geneva, expected another round of U.S.-China talks before any meeting between Xi and Trump. The 24% duty rate on Chinese goods currently suspended until November is likely to become permanent, he said. 

Moves by the U.S. to lower tariffs and relax export controls would be welcome but any agreement to increase purchases of American farm and energy products would have to respond to the actual needs of China, whose efforts to diversify its supply base would be hard to reverse, said Jin Xu, president of the China International Trade Association. Beijing would not rush into an agreement but would wait for commitments to stable tariff levels and equal treatment for Chinese companies, Jin said. (See MNI INTERVIEW: Too Early To Say If China, U.S. To Clinch Deal)

Trump’s call for the EU to impose tariffs of up to 100% on India and China in order to put pressure on Russia is another risk for the China-U.S. talks, the former official said. For the moment, it seems unlikely that the U.S. will impose punitive tariffs on China over Russian oil imports, but any such move by the EU would prompt a full-scale trade war between Beijing and Brussels, Zhou said.