The U.S. and China are taking baby steps to ease tensions in their trade war, as negotiators prepare for the resumption of face-to-face talks in Washington in the coming weeks.
On Wednesday, U.S. President Donald Trump said he was postponing the imposition of 5% extra tariffs on Chinese goods by two weeks, meaning Chinese officials can celebrate their Oct. 1 national day without a fresh escalation.
Meanwhile, China is considering whether to permit renewed imports of American farm goods including soybeans and pork, according to people familiar with the situation, potentially taking some pressure off U.S. states with large numbers of Trump supporters. The Ministry of Commerce said Thursday Chinese companies have started inquiring about prices for U.S. agricultural products including soybeans and pork.
Taken together, the measures pale in comparison to the oncoming hit from U.S. tariff increases still in the pipeline for October and December, the fruit of a rapid escalation in tensions between the two sides last month. At the same time, as evidence mounts in both nations of the economic damage that the trade war is doing, there’s more urgency for a deal.
Trump escalated the U.S.-China trade war in August when he announced an increase in levies on Chinese goods. That was in response to higher Chinese tariffs which were a reaction to a previous increase by the U.S.
China welcomes the postponement of U.S. tariffs as a goodwill gesture, Ministry of Commerce spokesman Gao Feng said at Thursday’s regular briefing. Mid-level teams will meet soon to prepare for higher level talks, he said, reiterating that both sides are communicating without giving a date for the meeting between the top negotiators.
Any further agricultural purchases are yet to be made and the volumes are still undecided, the people said. China had halted U.S. farm-product imports in August after negotiations deteriorated.
Earlier on Wednesday, China announced a range of U.S. goods would be exempted from 25% tariffs put in place last year, as the government seeks to ease the impact from the trade war. While that move may create some good will in Washington, China didn’t exempt agricultural goods produced in key Trump-supporting states.
At home, China is facing factory-price deflation, falling exports and an uncertain path for government stimulus policy given the nation’s debt load and fragile property sector. In the U.S., factory activity unexpectedly contracted in August for the first time in three years, underscoring how slowing global growth and an escalating U.S. trade war with China are taking an even bigger toll on domestic producers.
“Trump’s goodwill gesture suggests that the trade war is starting to bite and the U.S. may be more eager to close a deal,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte. in Singapore. “The clock is ticking and Trump’s approval ratings are sliding, with manufacturing now in recession.”
Despite the goodwill gestures, the two sides remain far apart on fundamental issues, and officials continue to trade barbs. China wants the U.S. to remove all extra tariffs, and the U.S. has long sought concessions on intellectual property and state-subsidies for industry that Beijing has been unwilling to give.
“The negotiators have had a year to come to an agreement, and they remain structurally at odds on key issues,” said Andrew Polk, co-founder of research firm Trivium China in Beijing. “Another two-week reprieve doesn’t change those fundamentals.”
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