MNI INTERVIEW: Too Early To Say If China, U.S. To Clinch Deal

It is too early to say whether China and the U.S. will reach a permanent trade deal despite another 90-day extension of the tariff pause between the two countries, a policy advisor to the Ministry of Commerce told MNI, adding that China will also continue to insist on its right to purchase Russian oil but that the truce would allow exporters time to take advantage of western holiday buying. 

Core conflicts between the U.S. and China have only been postponed by the truce, said Zhang Jianping, deputy director of the Academic Committee at the MOFCOM-affiliated Chinese Academy of International Trade and Economic Cooperation. 

Zhang stressed the difficulty of reaching a comprehensive deal between the world’s largest two economies, noting that it normally takes more than a year for China to negotiate a bilateral free trade agreement with even a small developing country. (See MNI: China Likely To Insist U.S. Tariffs Drop To 10%- Advisors) 

“China will ensure through negotiations and a diversified countermeasure toolbox that the U.S.’s coercive tariffs do not entirely disrupt the trade relation,” he added in an interview. 

“China will also continue to safeguard its own interests in purchasing Russian oil, which is a matter of sovereignty,” said Zhang, adding that Russia is an important long-term economic and trade partner, with the China-Russia Far East Gas Pipeline facilitating trade unrelated to the Russia-Ukraine conflict or U.S.-Russia disputes. 

EXPORT OUTLOOK

China’s exports to the U.S. were down by more than a fifth year-on-year in July, though exports overall grew by 7.2%, despite market expectations for a slowdown due to the fading effects of the front-loading seen in H1. Exports to the European Union, ASEAN countries and Africa jumped by 9.2%, 16.6% and 42.4% y/y last month, with Zhang pointing to efforts to diversify export destinations to RCEP and Belt and Road countries. 

Global demand for Chinese goods is unlikely to be significantly affected by U.S. trade deals with other economies which slash tariffs on American goods, said Zhang, pointing to the cost advantage and wide range of China’s production. 

“U.S. products are largely concentrated in the mid- and high-end sectors, with much higher production costs, which is somewhat misaligned with the needs of developing countries,” he said. 

China can also boost production of intermediate goods, or move more production lines abroad, said Zhang, adding that this would offset the impact of measures such as the 40% tariff on “trans-shipped’ goods agreed between U.S. and Vietnam. 

Meanwhile, the tariff truce provides exporters with a chance to meet some peak holiday season demand in the U.S., Zhang said. Net exports contributed 31.2% to China’s H1 GDP growth.