MNI: Trump-Xi Meet Likely, But Any Deal Modest-China Advisors

There is still a good chance that Donald Trump will meet Xi Jinping at the end of this month during the APEC summit in South Korea, and that the two leaders will agree a short-term truce in the two countries’ trade war, but prospects for a longer-term deal have receded following last week’s sudden escalation in tensions, Chinese policy advisors told MNI.

China is likely to hold off from any immediate retaliation against an additional 100% tariff threatened by Trump in response to Beijing’s tough new restrictions on exports of rare earths while it waits to see the outcome of any discussions between Xi and Trump should these go ahead, advisors said.

While Trump has said he now saw “no reason” to meet Xi, advisors in Beijing still expected negotiators from both sides to meet soon to prepare for the potential encounter in Korea. (See MNI: Beijing Targets Trump Visit, Sees Limited Deal - Advisors)

“The two heads of states will most likely seize this opportunity to meet in a third country, which is easier than state visits, and a framework agreement aimed at preventing further escalation of tensions can still be expected,” said Zhao Yongsheng, a research fellow of the Institute of Regional and International Studies at the University of International Business and Economics. “With only two weeks left before the potential meeting, both sides have left room for manoeuvre and will probably see how it goes at APEC.”

PORT FEES

The rare earth restrictions came partly in response to new U.S. port fees on Chinese ships and to Beijing’s concern that the U.S. was about to extend export restrictions from high-tech chips to other areas despite commitments made in previous negotiations, a former Ministry of Commerce official noted. 

China would be willing to ease the rare earth controls in exchange for a U.S. move to ease high-tech export restrictions, said Zhao. China could also increase purchases of U.S.  goods, possibly including hundreds of Boeing aircraft, given its requirements for long-range wide-body airliners over the next decade, he said.

China’s rare earth export limits may have been influenced by an advance in its semiconductor manufacturing which reduces its vulnerability to retaliation, Zhao noted. 

“The two heads of state may issue a statement with some principles for de-escalation and authorise the teams of both sides to discuss the details,” Zhao said.

But the former official had limited expectations for U.S. concessions in the near future, adding that these are unlikely to extend beyond the possible removal of a 20% tariff imposed in response to sales of fentanyl precursors.

COMMUNICATIONS

Still, consultation mechanisms established in earlier negotiations mean the current escalation is unlikely to worsen along the lines of the tit-for-tat measures seen in April, said Zhou Mi, researcher of Chinese Academy of International Trade and Economic Cooperation at the Ministry of Commerce.

Zhao said he remains concerned about the absence of effective communications between the two countries.

“The pre-notification mechanism or hotlines should be restored,” he said, adding that over-reliance on head-of-state diplomacy while ignoring the role of technocrats is not conducive to the stable development of bilateral relations.

As global mining output increases and technological breakthroughs occur, China's advantage in rare earths will become less pronounced, the former official said. The country must use the next five years to develop its own chip industry, he said.