Mnuchin signals end to trade war

U.S. Treasury Secretary Steven Mnuchin said that if China presents enough trade concessions to President Donald Trump, there’s a chance the administration may lift all tariffs.

Background 

The United States and China are two of the largest economies in the world. Both countries consider the other as a partner in trade and an adversary in geopolitics. Diplomatic relations between US and China was first established in 1844 with the Treaty of Wanghia. This agreement allowed the US to trade in Chinese ports. After the Qing Dynasty was overthrown, in 1911, the US recognized the legitimacy of the Republic of China (ROC) government.

The U.S.–China Strategic and Economic Dialogue was created in 2009. Every year, high level representatives from both nations open up dialogue to improve economic partnership. In 2017, the meetings that occurred were reported as being “tense”. Upon conclusion, the two countries cancelled a joint press conference and did not release a statement. They also did not release a plan of action.

US President Donald Trump has previously been a critic of China. He blamed the country for loss of jobs within the US and has often criticized the US trade deficit with China. China's trade surplus with the United States widened in 2017 while total foreign trade volume maintained rapid growth.

Trump has raised concerns about a full-blown trade war by targeting Chinese imports. After months of rhetorical exchanges between Washington and Beijing, the imposition of the new import taxes makes real a conflict that has rattled markets, scrambled corporate supply networks and chilled business investment.

Analysis 

Trump and China’s Xi Jinping gave their officials until March 1 to work out a deal on “structural changes” to China’s economic model. If they fail, Trump has promised to raise the tariff rate on $200 billion in Chinese imports to 25 percent from 10 percent. The collapse of talks would dash hopes of a lasting truce that would remove one of the darkest clouds hanging over the world economy.

“Everything is on the table,” Mnuchin said early Tuesday during an interview on Fox Business Network. The Treasury chief is set to meet with top Chinese officials in Washington on Wednesday and Thursday alongside U.S. Trade Representative Robert Lighthizer about a month before the U.S. is set to escalate its trade war with China with fresh tariffs.

China is facing added urgency to end the trade dispute amid the weakest domestic growth since 2009.

Divisions remain within Trump’s trade team, with hawks including Lighthizer and National Trade Council Director Peter Navarro seeking tougher terms from China, and Mnuchin and White House economic adviser Larry Kudlow prioritizing preserving U.S. growth.

Mnuchin pushed back on speculation that the U.S.’s latest actions against Huawei Technologies Co. were tied to the trade talks. U.S. prosecutors on Monday filed criminal charges against Huawei, accusing the Chinese company of stealing trade secrets and committing bank fraud. But Mnuchin insisted the case was separate from trade negotiations, adding that he wasn’t aware in advance of Monday’s charges.

In a sign of the importance the White House is placing on the talks, Trump is expected to meet China’s top trade negotiator at the end of the week. In addition to U.S. demands for structural changes to China’s economy, the latest round of talks will cover Beijing’s pledge to buy more American goods.

While Mnuchin acknowledged that growth has slowed in Europe and in China, he does not expect that to impact U.S. growth. “We see no indication whatsoever of a recession on the horizon,” he said, adding that the trade dispute with China is not hurting the U.S. and that “there is still a very good case for 3 percent growth this year.”

The non-partisan Congressional Budget Office painted a different picture of the U.S. economy. Budget deficits are seen widening and economic gains will be “muted,” slowing to 2.3 percent for this year and 1.7 percent in 2020, the CBO said, adding that the burst of economic growth in 2018 fuelled by Republican tax cuts will fade in the coming years, while tariffs imposed by the Trump administration may dent the economy and hit business confidence.

Assessment 

Our assessment is that Trump’s steadfast negotiation tactics have allowed the US to secure some commitment from the Chinese. There is now a movement from confrontation to engagement. We feel that the US will gradually work on security concerns like China’s attempt to expand in the South China Sea and China’s cyber-enabled theft of US intellectual property. We believe that it is important to ensure the Chinese ‘do not lose face’ in the current trade war.