Polite boilerplate statements from both sides marked the first high-level trade talks between the United States and China since the signing of the phase one trade deal in January, reiterating the fact that trade is the only remaining area of constructive dialogue in the crumbling superpower relationship.
Lead negotiators Vice-Premier Liu He on the Chinese side, along with Treasury Secretary Steven Mnuchin and US Trade Representative (USTR) Robert Lighthizer on the American side, spoke in a delayed telephone call on Tuesday morning Chinese time.
A statement from the Office of the USTR – which initially misspelled Liu He’s name – said that “both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement”.
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On the Chinese side, a short statement said negotiators had “conducted a constructive dialogue on such issues as strengthening bilateral coordination of macroeconomic policies and the implementation” of the trade deal.
A Beijing adviser downplayed China’s raising the issue of macroeconomic policy coordination – which did not appear in the US statement afterward – as “empty talk”, because “economic coordination is not within USTR’s remit”, the person said, speaking on condition of anonymity.
These statements were restrained compared with the rancorous geopolitical environment into which they were released.
The talks came just after US President Donald Trump delivered a tirade of invective against China and his political opponent, Joe Biden, at the Republican National Convention (RNC), saying “China will own our country if this guy gets elected”.
That was just a day after Trump’s 2020 re-election campaign published a policy agenda that vowed to further hack away at ties with Beijing by offering tax credits for American firms that repatriate manufacturing and by banning US companies from federal government contracts if they outsource to China.
Phase one may be the only bright spot in the broader relationship, but what’s clear is that the light is still on
The two sides already seem to be descending into a new cold war, embroiled in rows over technology, visas, China’s military build-up in the South China Sea, Beijing’s alleged human rights abuses in Xinjiang, and the central government’s crackdown on Hong Kong’s autonomy, to name but a few open wounds.
So, while ex-officials and current advisers on both sides were cautious not to read too much into the scheduled catch-up, there was a mutual sense that any channel of communication was better than nothing at all.
“Both sides agreed to create conditions to further implement the deal,” the adviser to Beijing said. “It indicates that the US still wants to keep the deal. So does China. What we expect to see is unchanged from before: China will continue to deliver its commitments, while the US will continue to check on its progress.”
Kelly-Ann Shaw, a former White House trade official who helped negotiate the deal, said that while the check-in was required by the terms of the phase one agreement, the fact that it went ahead “shows that both sides are still committed to the deal, despite broader tensions”.
“Economic and national security issues have always proceeded down separate tracks – that fact hasn’t changed. Phase one may be the only bright spot in the broader relationship, but what’s clear is that the light is still on,” Shaw said.
An analysis of polling data for November’s election, lined up next to US export data for goods covered by the phase one trade deal, helps explain why the Trump administration persists with a deal that China stands little chance of fulfilling.
The five US states that produced the most soybeans and corn in 2019 were Illinois, Iowa, Minnesota, Nebraska and Indiana. Illinois was carried easily by Hillary Clinton in the 2016 election and is expected to be another comfortable Democratic victory in November, but the situation in other states is more complicated.
Trump carried Iowa by 9.5 per cent in 2016 but now holds a lead of just 0.7 per cent over Biden, according to pollsters FiveThirtyEight.
In Nebraska, Trump triumphed by a huge 25 per cent in 2016, but that has narrowed to just 2 per cent in the latest polls, while Biden has extended Clinton’s 1.5 per cent narrow margin to a 5.8 per cent lead in Minnesota’s polls.
In North Carolina, a top-five pork-producing state that Trump carried in 2016 by a margin of 3.67 per cent, Biden leads by 1.9 per cent, FiveThirtyEight reported.
Even in the Republican stronghold of Texas – by far the US’ biggest oil-exporting state – Biden trails Trump by just 0.9 per cent. Earlier this month, Chinese state-owned buyers tentatively booked tankers to export at least 20 million barrels of US crude in August and September, having bought very little since the deal was signed, Reuters reported.
“Trump needs to maintain the conceit that he is delivering a win to his political base – particularly Midwestern farmers who have been ravaged by the trade war – and that major Chinese agricultural purchases are coming,” said Clark Jennings, the former trade adviser to the Obama White House, “while at the same time, publishing a second-term agenda this week that hints at decoupling and trashing China amid the RNC.”
China’s purchases of soybeans rose by 32.2 per cent from June to July, a South China Morning Post analysis of US customs data shows. Corn sales skyrocketed 125.4 per cent over the same monthly period.
While sales of pork and chicken fell back in monthly terms, they are much improved on previous years, even as Chinese customs authorities have tightened inspections of meat products from coronavirus hotspots amid fears that the virus was being imported in frozen food.
“Beijing wants to keep the trade deal alive at all costs. It’s the only point of light in an otherwise abysmal bilateral relationship,” read a note by the Beijing-based economic consultancy Trivium China this week.
“The Trump administration doesn’t want to see the deal sunk either, since it’s got China buying literally tonnes of American agricultural products.”
But the fact remains that China has bought less than half the level of goods required to meet its pro rata trade-deal targets for the year. And what once were common references to a follow-up trade deal that would tackle structural reforms to China’s economy have disappeared.
“The phase one implementation consultations appear to have been entirely pro forma, despite the near certainty that China will not be able to fulfil its obligations, and President Trump’s previous statements about how tough he’s going to be on enforcement,” said Stephen Olson, a senior research fellow at the Hinrich Foundation and a former US trade negotiator.
“And the phase two negotiations, which were intended to finally address some of the core trade issues, have been quietly dropped.”
With a little over two months until the election, and more than four months until the next inauguration, the Trump administration is expected to continue pushing an aggressive, China-focused foreign policy.
Recent sanctions on Hong Kong and mainland officials, including the city’s chief executive, Carrie Lam Cheng Yuet-ngor, were far beyond the scope of what many analysts had expected, and fuelled fears that more surprises might be in store on the multiple fronts that Trump has opened on China.
“China still needs to be alert to the risks that the US administration may turn Trump’s decoupling threats into action, which would be dependent on sentiment and how confrontational both sides are,” the Chinese government adviser said.
One such avenue commonly discussed would be freezing China’s banking sector out of the US dollar payments system – referred to as the “nuclear option” – because it would probably mean curtains for US-China trade.
“The big one would be if he hit a Chinese financial institution for aiding and abetting the central government in its control of Hong Kong, like the Bank of China, or ICBC,” said James Green, who until 2018 spent almost two decades in China-policy roles in the US government and private sector.
“That would be quite new in US sanctions policy and would lead to a decoupling in the financial area, which we haven’t really seen that much of.”
A restraining factor on this front, however, could be that if China cannot make dollar purchases, it cannot buy US farm goods nor other phase one-covered products that may be crucial to Trump’s re-election.
“The US is looking at very limited actions against China on the financial front, because if it made massive sanctions such as against [major banks like] Bank of China, it would almost certainly invite questions [about China’s ability] to buy soybeans,” said Cliff Tan, an independent financial economist in Hong Kong.
Additional reporting by Karen Yeung
More from South China Morning Post:
- How the US uses the dollar payments system to impose sanctions on a global scale
- China’s wish to end US dollar dominance is unlikely to come true with no genuine challenger in the wings
- Trump says China failing to meet trade deal commitments, piling pressure on Beijing ahead of review
- China, US to hold phase one trade deal talks ‘in the coming days’
- US-China trade war: Beijing will honour phase one deal by opening financial sector wider, its central bank chief says
This article US-China trade war: both sides cling to phase one deal as wider relationship crumbles first appeared on South China Morning Post