US-China trade talks - strained

US-China  trade talks - strained
US and China have just concluded their trade talks, which has been at best termed as tepid. The two sides could not arrive at a consensus of bridging the US$ 347 billion trade deficit currently in favor of China. The general feeling in Washington is..

US and China have just concluded their trade talks, which has been at best termed as tepid.

The two sides could not arrive at a consensus of bridging the US$ 347 billion trade deficit currently in favor of China.  The general feeling in Washington is that the dialogue was underwhelming.  

Background

United States and China are two of   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, US recognized the legitimacy of the Republic of China (ROC) government.

When civil war broke out in 1945, between Communist Party of China (CPC) and the ROC, the US supported ROC. CPC gradually gained control of the mainland and this led to the formation of People’s Republic of China. By the 1970s, US realized the geopolitical compulsion to establish relations with PRC and officially recognized the government. It continued its unofficial support to  Taiwan through  various trade and military  deals

The two countries have established a robust framework of trade. Currently, the US-China trade relationship supports around 2.6 million jobs in the United States. In 2015, China purchased $165 billion in goods and services from the United States in 2015

After Japan, China is the US’ biggest overseas creditor. It’s holdings of US debt is around $1.12 trillion dollars.

Analysis

The U.S.–China Strategic and Economic Dialogue was created in 2009. Every year, high level representatives from both nations open dialogue to improve the economic partnership.  The latest set of meetings have reported as being “tense”. Upon conclusion, the two countries cancelled a joint press conference and did not release a statement. They have also not released 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. According to the US administration, China acknowledged that US trade deficit with China should be reduced but no new steps have been proposed to address it. US Treasury Secretary Steven Mnuchin struck a conciliatory note and said, “China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve.”

Commerce Secretary Wilbur Ross has called for a “rebalance” in trade that is fair, equitable and reciprocal.  Vice Premier Wang Yang, who headed the Chinese delegation countered by noting that this was an uneven playing field as both nations are in different stages of development.

The dialogue followed weeks of tense ties between US and China. Trump has expressed his frustration with China for not countering North Korea. China's $347bn (£266bn) trade surplus with the US has also been criticized. Trump has also threatened to impose tariffs on Chinese steel. The US steel industry has blamed Chinese overcapacity for hurting US producers.

Assessment

 Our assessment is that the crux of the dispute between the two leaders is what President Trump wants and what President Xi Jinping is willing to provide. Both countries have to tackle fundamental issues back home in meeting the economic aspirations of the people. The bonhomie that existed in the past is almost over when   goods manufactured in China at low prices would help to keep a check on US inflation. The US is also mindful that the trade surplus that the Chinese have been able to profit is helping them build strategic military capability which now threatens the US. 

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