When it comes to trade with China, Trump is hardly winning

Reporter
Yahoo Finance

The U.S. and China have decided to put the looming “trade war” on hold after months of talks. Washington will soon reportedly lift its ban on U.S. firms supplying Chinese telecom giant ZTE Corp., and as part of the deal, China will remove tariffs on imported U.S. agricultural products.

President Donald Trump touted the benefits of the looming agreement for farmers. “Under our potential deal with China, they will purchase from our Great American Farmers practically as much as our farmers can produce,” he tweeted on Monday.

But there are some caveats. China hasn’t committed to a specific amount of purchases.  And China’s alleged theft of U.S. intellectual property hasn’t been addressed — the elephant in the room.

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China doesn’t want to be locked in

After months of negotiations, the U.S. and China hit the “pause” button on a trade war. (CNBC)
After months of negotiations, the U.S. and China hit the “pause” button on a trade war. (CNBC)

China is the second largest market for U.S. farmers, accounting for 14.2% of agricultural exports in the U.S. last year. Agricultural products have been at the center of trade tensions after China announced a tit-for-tat tariff on U.S. soybeans, which has drawn a series of political backlash from farmers in the Midwest.   

In a statement released Saturday, China promised “meaningful increases in United States agriculture and energy exports”, but didn’t provide any specifics, said Claude Barfield, a former consultant to the Office of the U.S. Trade Representative (USTR). “China doesn’t want to be locked in. It will seem to be bowing to the president of the United States and they’re very sensitive about that.”

Farmers could benefit from increased buying interest from China, but Barfield cautions this could also set a bad precedent for other trading partners by allowing politics rather than the market dictate relationships.

China is a country that is good at diplomatic tactics and making grand gestures, therefore it could take a long time for it to actually act on its promises. Last year, China agreed to buy 12.53 million tonnes of U.S. soybeans and 371 tonnes of beef and pork from the U.S., the second-largest deal between the two countries. But soybean traders called it “meaningless” since the agreement was in the form of frame contracts, which are usually non-binding letters of intent to buy at a later date, without formal sales terms.

Farmers, who are worried by Trump’s aggressive rhetoric on trade, await more details on that deal and whether China will keep its promise. “We applaud the Administration’s focus on supporting U.S. ag exports in this framework, but note that there is still an enormous amount of work that must be done to take this agreement from concept to reality and to deliver certainty and stability to farmers and ranchers,” Farmers for Free Trade, a lobbying group, said in a statement on Monday.

Focus shift: high-tech to soybeans

China’s telecom gear maker ZTE has become a chess piece in trade talks between Washington and Beijing. (CNBC)
China’s telecom gear maker ZTE has become a chess piece in trade talks between Washington and Beijing. (CNBC)

The U.S.-China trade tension didn’t start with soybeans or cotton. Trump has repeatedly taken aim at China for its market protection policies like forced joint ventures and forced technology transfers. Last year, Trump ordered probes into China’s alleged theft of American technology and intellectual property.

USTR concluded Chinese theft of intellectual property costs America between $225 billion and $600 billion annually. It proposed to implement 25% tariffs on certain Chinese products, which drew fierce retaliation from China.

But Saturday’s statement said little about all this. Barfield thinks the language is very vague about what China is going to do. “You can’t just leave it with agricultural, because that’s not really the center of our difficulties with China,” said Barfield, who now is a resident scholar at the conservative American Enterprise Institute. “If the administration declares victory to this and goes home, they miss big opportunities.”

It’s easier for China to make concessions by increasing imports, as the world’s second-largest economy the country has been expanding its buying to satisfy the need of the growing middle class. But China has shown very strong resistance when it comes to its technology policies. Proposed tariffs from USTR targets Beijing’s “Made in China 2025” plan, but China warns to “fight to the end” to defend its national ambition in developing advanced IT products like robotics and aerospace.

The U.S. will send delegates to Beijing to work on more details of a trade deal, according to the statement. But before that, Trump has a more urgent matter to deal with — North Korea. Trump is scheduled to meet North Korea’s Kim Jong Un in Singapore on June 12. 

The trade dispute “is now on hold because the U.S. needs China to keep diplomatic and economic pressure on North Korea ahead of next month’s summit,” wrote Greg Valliere, the chief global strategist at Horizon Investments, in a note on Monday. 

Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter.

Read more:

How Trump is making your beer more expensive 

Why the soybean could be China’s trump card in the trade war

Larry Fink on trade: ‘China is our banker’

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