Here at our CUSEF blog, we share news, updates and stories about China and the United States. We provide more than a cursory glimpse of what’s going on between the two powers - here, we offer an in-depth look into their current state of affairs.

News Highlights

The Rocky Road of October Trade Talks

U.S. President Trump greets with Chinese Vice Premier Liu He. [Photo Credit: Axios]
U.S. President Trump greets with Chinese Vice Premier Liu He. [Photo Credit: Axios]

The trade war between the United States and China has ebbed and flowed through various states of uncertainty for the past 18 months, as the two countries continued to impose retaliatory tariffs on each other. More recently, tensions have increased due to events outside the economic sphere, both within the countries’ bilateral relationship and in their own domestic realms. The situation further deteriorated when the Trump administration announced its decision to blacklist eight Chinese technology firms and other entities, including HikVision and Megvii, for their alleged role in the controversial polices regarding religious minorities on the Chinese mainland. Policy developments in the trade war have been continuously accompanied by movements in global stock markets—and the increased tensions in October lowered market expectations for a successful trade deal.

Photo Credit: CNET

Following the U.S. decision to blacklist the Chinese companies, and China’s response, the Dow Jones Industrial Average dropped 1.2%. Technology stocks were among the biggest losers as chipmakers absorbed the impact of the latest U.S. restrictions on sales to China.

Amidst ongoing tensions, Chinese officials made it clear that they are unwilling to abandon the country’s state-heavy industrial policy. For some, this reflects that Trump’s objectives were too ambitious. China’s stance could also be influenced by Trump’s actions regarding his own economy: while asking China to engage fairly in free trade, the U.S. President has moved his own country away from the free market, espoused protectionist rhetoric and denounced the efficacy of international bodies like the U.N. and WTO, which are crucial to maintaining order within the international economy. Also, the current impeachment inquiry led by President Trump’s political rivals adds to the idea that Trump desperately needs to make a deal, providing the Chinese negotiating team with additional leverage.

Under the weight of these events, a Chinese delegation, headed by Vice Premier Liu He, met with American representatives earlier this month in Washington, DC., led by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. Although several reports had indicated that the Chinese delegation had not been optimistic about the talks, President Donald Trump struck an optimistic tone in a tweet on the second day of talks, “Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like Old Days… All would like to see something significant happen!” After the president’s tweet, stocks traded higher at the market open the next day, as Wall Street grew more optimistic about the outcome of trade talks with China. A state-run Chinese newspaper said on Friday, October 11, that ‘a partial deal is a more feasible objective.’ Similarly, stocks in Asia went up that day.

On the same day, President Trump triumphantly announced that the two sides had reached a tentative agreement for the “first phase” of a trade deal. The U.S. agreed to suspend tariffs scheduled to go into effect on October 15 in exchange for the Chinese import of up to US$50 billion worth of U.S. agricultural products and the acceptance of additional American financial services into Chinese markets. Confidence in the deal was initially marred by delays in confirmation from Beijing; however, a few days following the U.S. announcement, the Chinese Foreign Ministry confirmed the two sides had reached an agreement.

Observers has questioned whether this “first phase” agreement could eventually yield a comprehensive, trade-war-ending deal, particularly as other facets of the China-U.S. relationship continue to heat up. However, both Beijing and Washington want to stabilize the environment and allow their economies to thrive; only a deal would create this ecosystem and create opportunity for both citizens of China and the U.S. to be prosperous.

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