Top negotiators from the United States and China met this week to see if they can find a way to end a trade war between the two nations. The U.S. delegation is led by Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer who are in Shanghai to meet with their Chinese counterparts.
No agreements were reached, although a report from the Wall Street Journal indicates both parties felt the talks were constructive, which sets the stage for another round in September.
It’s been three months since the two sides met, and it’s in the best interests of both countries to work through their differences. While the hope for a larger agreement is being advised against, there’s also a goal to find a solution for the ongoing tariff battle. A tit-for-tat exchange has been in effect for the past year and a half, and these delays hurt both economies.
However, on the eve of the negotiations, President Trump took to Twitter to lambast the Chinese, calling them untrustworthy. He also made a critical reference to Joe Biden, calling him “Sleepy Joe,” and said the Chinese were holding out hope that Biden would give them more favorable terms.
Trump inferred the Chinese haven’t come through on promises to buy more U.S. agricultural products, stalling in the hopes that either Biden or another Democrat wins the U.S. presidential election in 2020.
The Chinese Commerce Ministry insists that its country bought increasing amounts of U.S agricultural products, especially soybeans, since the G20 Summit, which has been confirmed—since mid-July, millions of tons of soybeans were purchased. Overall, according to a report published by MSNBC, exports are up 7 percent over 2018. The Chinese are also buying large amounts of U.S. cotton, pork, and sorghum.
But the trade deficit with China continues to grow. CNBC reported that in May, U.S exports to China increased to $9.1 billion, but during the same time, Chinese imports also rose to $39.3 billion, bringing the deficit in 2019 to $137.1 billion. This is actually lower than the deficit during the same period of 2018, which was $15 billion dollars less.
Trade negotiators also face a sticky situation with the Chinese tech giant Huawei. U.S. intelligence has reason to believe Huawei receives state support and has close links to the Chinese government. The Chinese vehemently deny this. The Trump administration placed an export ban on American companies from selling to Huawei, citing issues of national security.
While Huawei released robust earnings statements in the last fiscal quarter, the ban hurt its cellphone market. Its growth in the second quarter was zero, and projections indicate the ban will cost the tech giant up to $30 billion in lost revenue. Huawei’s founder and CEO Ren Zhengfei predicted in June that the company’s overseas smartphone shipments would drop close to 40 percent.
The U.S. decided to double down on the Huawei ban. New Defense Secretary Mark Esper said in a Pentagon briefing spoke about keeping Huawei products out of U.S. defense systems. “I think we need to be very concerned about Chinese technology getting into our systems or the systems of our allies. Huawei is the poster child right now for that,” Esper said.
President Trump softened his tune a bit on Huawei at the G20 Summit this year, stating that he’ll allow some U.S. companies to sell to the Chinese tech giant. But the Chinese aren’t accepting this as a goodwill move. They believe this is more of a reaction by American tech companies feeling the pinch of losing a big paying customer.
The fallout from the trade war is taking a toll on global markets as well. Other European and Asian companies halted expansion plans as they contemplate whether to pull out of China completely if the trade wars and tariffs continue. The International Monetary Fund (IMF) has cut its growth forecasts for the global economy for this year and next.
The IMF predicts growth of global markets of 3.2 percent in 2019, down from its April forecast of 3.3 percent. Growth next year is set to pick up to 3.5 percent next year, down from its earlier forecast of 3.6 percent. Growth “remains subdued,” the IMF said, as the need to reduce trade and technology tensions remains high.