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China-US trade war on hold

Summary:
A significant softening of the US stance increases the likelihood of reaching a final agreement.Two weeks after the US-China talks in Beijing, the two countries held another round of trade negotiations in Washington DC on 17-18 May. After the meetings, delegations on both sides released a joint statement that was brief but constructive in tone. In essence, China has agreed to significantly increase its imports of American goods and services to reduce the US trade deficit with China, to improve its protection of intellectual property rights, and to create more favourable conditions to expand its trade with the US. While many details are still missing, it appears that the meetings have produced a framework in which both parties have agreed to work to reduce recent trade tensions. In a media

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A significant softening of the US stance increases the likelihood of reaching a final agreement.

Two weeks after the US-China talks in Beijing, the two countries held another round of trade negotiations in Washington DC on 17-18 May. After the meetings, delegations on both sides released a joint statement that was brief but constructive in tone. In essence, China has agreed to significantly increase its imports of American goods and services to reduce the US trade deficit with China, to improve its protection of intellectual property rights, and to create more favourable conditions to expand its trade with the US.

While many details are still missing, it appears that the meetings have produced a framework in which both parties have agreed to work to reduce recent trade tensions. In a media interview after the meetings, Mr. Liu He, the Chinese vice premier and the special envoy of President Xi who led the Chinese trade delegation to the US, said both countries had agreed not to engage in a trade war. The US Treasury Secretary Steven Mnuchin said the US is “putting the trade war on hold” and that the previous announced additional tariffs on Chinese goods are suspended while both parties work to towards a “framework” deal. In exchange, China announced it was dropping its anti-dumping probe into imports of US sorghum. On 22 May, China also announced lower duties on imports of cars and car parts.

In our view, this framework deal is a positive development for both economies. Although details still have to be worked out, the risk of further escalation in trade tensions is diminishing, at least in the near term. The lifting of the trade tariff threat, in particular, removes a sword of Damocles hanging over business confidence.

Most contents of the joint statement address the list of requests presented by the US delegation when it visited Beijing in early May – barring the specifics of a USD200 billion reduction in the bilateral trade deficit over two years. The framework deal also shows that President Trump is increasingly sensitive to the concerns of the agribusiness (not a coincidence as the midterm elections approach and that the more pragmatic and serene voices in the White House are gaining in influence.

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