The World BusinessMirror
Editor: Angel R. Calso
Friday, August 9, 2019
A7
Why a US-China deal that once looked close now seems far-off By Paul Wiseman
A BANK employee counts US dollar banknotes next to a stack of 100 Chinese yuan notes at a bank outlet in Hai’an in eastern China’s Jiangsu province on Tuesday. China’s yuan fell further on Tuesday against the US dollar, fueling fears about increasing global damage from Beijing’s trade war with President Donald J. Trump. CHINATOPIX VIA AP
CHINA IMPORTS FROM U.S. FALL 19 PERCENT IN JULY AMID TRADE WAR
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EIJING—Chinese imports of American goods plunged in July as a tariff war with Washington intensified. Impor ts of US goods fell 19 percent from a year earlier to $10.9 billion, customs data showed Thursday, though that was an improvement over June’s 31.4-percent fall. Exports to the United States declined 6.5 percent to $38.8 billion. Beijing has retaliated for US tariff hikes in a dispute over trade and technology by imposing its own punitive duties and suspending purchases of American soybeans and other goods. The latest data follow President Donald Trump’s threat last week to extend punitive duties to an additional $300 billion of Chinese imports. China’s total exports rose 3.3 percent over a year earlier to $221.5 billion, rebounding from June’s 1.3-percent contraction amid weakening global consumer demand. Imports shrank 5.6 percent to $176.4 billion, an improvement over the previous month’s 7.3-percent decline. “Shipments in and out of China held up better than expected last month, but a sustained turnaround still looks unlikely in the near term,” said Julian Evans-Pritchard of Capital Economics in a report. C h i n a’s c e n t r a l b a n k r at t l e d g l o b a l financial markets this week by allowing i t s y u a n to we a ke n to a n 1 1 - ye a r l ow against the US dollar. That would make Chinese goods less expensive abroad but the currenc y’s 5-percent decline this year, against the dollar, is too small to completely offset US tariffs of 25 percent. China’s global trade surplus widened by 60 percent over a year ago to $45.1 billion. The surplus with the United States was little changed but stood at $28 billion, a level that might fuel American pressure for Chinese concessions in trade talks. Wa s h i n g to n a n d B e i j i n g a re l o c ke d in an increasingly costly tariff war over US complaints China steals or pressures companies to hand over technology. The United States and other Chinese trading
p a r t n e r s c o m p l a i n B e i j i n g’s p l a n s f o r government-led development of global competitors in robotics and other fields violates its market-opening commitments. Trade has weakened since Trump started hiking tariffs on Chinese goods last June. Beijing retaliated with its own penalties and ordered importers to find non-US suppliers. Trump and President Xi Jinping agreed in June to resume negotiations, but talks last week in Shanghai ended with no sign of agreement. Envoys are due to meet again next month. Economists warn the truce is fragile because the two sides still are separated by the disagreements that caused talks to break down in May. Trade weakness has added to pressure on Xi’s government to shore up economic growth and avoid politically dangerous job losses. Beijing agreed last year to narrow its trade surplus with the United States by buying more American natural gas and other exports, but scrapped that plan after one of Trump’s tariff hikes. The Chinese government said in June that any purchases must be at a reasonable level, suggested Beijing was becoming more cautious about making big commitments before it sees what Washington offers in exchange. Chinese leaders express confidence their economy can survive the tariff fight. Impor ters of American soybeans and other goods are trying to switch to Brazilian, Russian and other sources, but supplies are limited and costs are higher. Farmers who use soybeans as animal feed have been told to switch to other grains. While American expor ters have been hit hardest, Chinese industries, including electronics, that Beijing sees as its economic future have suffered double-digit declines in sales to the United States, their biggest market. Economists say even if a settlement with the US is reached, China’s exports this year will be lackluster due to weak global demand, putting pressure on manufacturers that support millions of jobs. AP
JAPAN GRANTS S. KOREA EXPORT LICENSE, LESSENING TRADE FEARS
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A PA N h a s g ra nte d t h e f i r s t ex p o r t license to South Korea under a stricter m o n i to r i n g s y s te m i nt ro d u ce d l a s t month, lessening fears the clampdown could halt supplies of essential materials to some of the world’s largest technology firms. Japan had imposed more rigid checks on exports of three specialty materials used in the chip and display industries, saying there were inadequacies in its neighbor’s export controls. The move threatened to upend a global supply chain already disrupted by growing US-Chinese tensions. “As we have repeatedly explained, this is not a ban,” Chief Cabinet Secretary Yoshihide Suga told reporters in Tokyo. “I believe this shows that we are permitting legitimate trade without arbitrary management.” Still, Suga didn’t specify the materials the license covered, making it hard for investors to parse Tokyo’s decision. Japan will continue to monitor exports to prevent the materials from being sold via third countries or used for unlicensed purposes, he added. “Al t h o u g h J a p a n’s ex p o r t p e r m i t i s welcome, it’s hard to say this is the beginning of the settlement,” Lee Eun-taek, a strategist with KB Securities, said in a research note.
Tensions between two of Asia’s largest economies escalated in July when Japan slapped curbs on the export to South Korea of the trio of materials, dealing a blow to the likes of Samsung Electronics Co. and SK Hynix Inc. Last week, Japan also removed its neighbor from a list of “white countries” that are seen as trusted expor t destinations, sparking outrage from South Koreans and ratcheting up concerns over the economic fallout. South Korean President Moon Jae -in said on Thursday that he didn’t understand J a p a n’s i n t e n t i o n s i n i n t ro d u c i n g n e w regulations, which he said had worsened the situation and undermined the international community’s trust. The export measures came amid a renewed dispute between the two countries over whether Japan has sufficiently compensated South Koreans for its 1910-1945 occupation of the Korean peninsula. Japanese Prime Minister Shinzo Abe said this week that court rulings holding Japanese com p a ni e s l i able to compensate S outh Koreans conscripted to work in factories and mines decades ago were a violation of the 1965 treaty, normalizing ties between the two countries. Bloomberg News
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Ap Economics Writer
ASHINGTON—A deal seemed so close. As recently as May, the Trump administration and China seemed on the verge of resolving their dispute over Beijing’s combative trade policies. Then it all collapsed. A cease-fire, declared by Presidents Donald J. Trump and Xi Jinping in June, failed to stick. Now, global financial markets are shaking, and central banks across the world are trying to cushion their economies from the worst by slashing interest rates—all in the expectation that a trade war between the world’s two biggest economies will continue to rage, probably through the 2020 US presidential election. “The US-China trade talks are in serious trouble,” said Wendy Cutler, a former US trade negotiator who is now vice president at the Asia Society Policy Institute. “There is less and less trust on both sides, coupled with a growing sense, in both Washington and Beijing, that they may be better off without a deal, at least for the time being.” The past week has been especially rocky. A week ago, Trump abruptly announced that starting September 1, he would impose tariffs on the remaining $300 billion in Chinese imports that he’s so far spared. On Monday, Beijing struck back: It halted purchases of US farm products—a blow to a critical Trump political base in the Midwest—and let its currency sink to its lowest level in 11 years. A lower-valued Chinese currency, the yuan, gives its exporters a competitive edge over foreign rivals. Beijing’s currency move led the US Treasury Department to declare China a currency manipulator for the first time since 1994. That step could eventually pave the way for additional sanctions. But for now, it stands mainly as a symbol of the increasingly rancorous feud between Washington and Beijing. “Both sides are retrenching,” said Timothy Keeler, a former chief of staff at the Office of the US Trade Representative and now a partner at the law firm, Mayer Brown. The prospect that the US-China trade war will go on indefinitely poses a serious threat to a global economy that was already weakening. It rattles financial markets, discourages trade and paralyzes businesses that must decide where to situate factories, buy supplies and sell products. When companies caught in the crossfire put such plans on hold, they collectively depress trade and growth. The International Monetary Fund expects world trade to slow down in 2019 for a second straight year. Central banks are moving to try to limit the economic damage, although reducing borrowing rates provide only a limited benefit when rates are already low. The Federal Reserve last week cut a key US interest rate for the first time in a decade. On Wednesday, the central banks of Indonesia, New Zealand and Thailand announced rate cuts of their own. “We’ll be talking about China and the trade-war dynamic over the next decade,” predicted Nate Thooft, head of global asset allocation at Manulife Investment Management. “It’s not going away permanently.” The Trump administration and Beijing are fighting over a thorny set of issues. The US side says the Chinese are cheating in their drive to dominate such cutting-edge technologies as artificial intelligence and
quantum computing. In particular, the administration alleges that Beijing is stealing trade secrets, forcing foreign companies to hand over technology and unfairly subsidizing Chinese tech firms while burying foreign competitors in red tape. Reaching a substantive deal was bound to be difficult, not least because it would require China to scale back its economic aspirations—aspirations that have become central to its selfidentity. Yet at the start of May the two sides seemed to be moving toward some kind of meaningful agreement. Abruptly, Trump accused Beijing on May 5 of reneging on commitments it had made earlier and said he would raise tariffs on $200 billion in Chinese products, a threat he made
good on five days later. The administration also began readying tariffs on an additional $300 billion in Chinese goods—an escalation that would target virtually everything China sells the United States. “People were way too optimistic in early May,” said Philip Levy, chief economist at the San Francisco freight company Flexport, who was an adviser in President George W. Bush’s administration. Trump and Xi offered a respite in June. Trump agreed to delay the new tariffs while broken-off talks resumed. After a 12th round of negotiations in Shanghai last month made scant progress, Trump busted the truce and said he’ll tax the $300 billion on September 1. He accused Beijing of trying to slow-walk the talks until 2020 in the hope that he would lose the election and they could negotiate with a Democratic president instead. Whether or not Trump is correct, there is little doubt that his mercurial style has made him difficult to trust in negotiations. Trump “remains a New York realestate salesman, whose abrasive tone and slippery style of haggling is not suitable for international negotiations and diplomatic relations,” said Jeff Moon, a former US diplomat and trade official specializing in China.
Beijing might have drawn a lesson from Trump’s dealings with Mexico: After pressuring Mexico into agreeing to a revamped North American trade deal last year, Trump refused, for months, to lift tariffs on Mexican steel and aluminum. Finally, in mid-May, he announced that he was dropping those tariffs, restoring harmony to regional trade ties—only to turn around two weeks later and threaten Mexico with new tariffs in a dispute, later resolved, over immigration. “I’m sure the Chinese were watching the Mexican experience,” Levy said. “From the Chinese perspective, it was getting harder and harder to see what a deal would look like that would buy you trade peace.” Other factors, too, are working against a compromise. As the 2020 election near, Trump may have less incentive to reach a trade deal that would likely draw fire from Democratic presidential candidates. X i, meanwhile, has his ow n reasons for avoiding concessions that might make him look weak. His regime faces protests in the semiautonomous region of Hong Kong. A nd this fall, he w ill oversee the 70th anniversar y of Chinese Communist rule—a time for patriotic chest-beating, not compromising w ith a foreign rival.