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China: Little progress in trade talks with US

Summary:
The likelihood of tariffs has increased. Although there is still room for negotiation, the process could be long and bumpy.A US delegation of Trump’s top economic advisors, led by Treasury Secretary Steven Mnuchin, had a two-day meeting with their Chinese counterparts in Beijing on 3-4 May to discuss the trade issues between the two nations. It appears that the meeting has led to little progress in solving the trade disputes between the two, meaning the trade tensions may persist for quite some time.The list of requests presented by the US trade delegation aims at reducing the US trade deficit with China, increasing US companies’ market access to China, protecting intellectual property rights by the US companies and curbing the development of some key technologies by Chinese companies.

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The likelihood of tariffs has increased. Although there is still room for negotiation, the process could be long and bumpy.

A US delegation of Trump’s top economic advisors, led by Treasury Secretary Steven Mnuchin, had a two-day meeting with their Chinese counterparts in Beijing on 3-4 May to discuss the trade issues between the two nations. It appears that the meeting has led to little progress in solving the trade disputes between the two, meaning the trade tensions may persist for quite some time.

The list of requests presented by the US trade delegation aims at reducing the US trade deficit with China, increasing US companies’ market access to China, protecting intellectual property rights by the US companies and curbing the development of some key technologies by Chinese companies. While these demands are largely as we anticipated, some specific targets and proposed measures are much more aggressive than we thought, which makes us believe that a trade deal could be very difficult to achieve in the near term. The Chinese government has also proposed its own list of demands, although it is much shorter than the US one.

Regarding trade tariffs, the US Trade Representative Office released on 23 March its plans to impose additional 25% tariffs on USD50 billion worth of Chinese goods. In response, China announced its own tariff package against US imports, proposing to hit USD50 billion of imports with a 25% tariff rate. Given the lack of progress in trade talks between the two parties, we think the likelihood that the tariffs will be enacted has increased. Without further escalation, the impact of the tariffs on the respective economies should be fairly limited (costing less than 0.1% of GDP). But the pain would grow if things escalated further from here and the damage to both the Chinese and US economies would no longer be immaterial.

In our view, the list of US demands is almost impossible for the Chinese government to accept in its current form. However, we also note that many of the demands are broadly consistent with the Chinese policy agenda, which means that there is room for further negotiation, although the path to a final agreement could be long and bumpy.

About Dong Chen
Dong Chen
Dong Chen is senior Asia economist, Pictet Wealth Management. - Twelve years of working experience in macroeconomic research - Extensive knowledge about asset allocation and multi-asset class portfolios - Rich client-facing experiences with high-net-worth clients across Asia - Rigorous training in economics and comprehensive knowledge about Asian economies and business - Strong analytical skills and solid background in statistical/econometric analysis - Strong communication / presentation skills - Native Mandarin Chinese speaker and fluent in English Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

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