China and the US have yet to reach a consensus on Chinese imports of US farm goods, casting a cloud over the upcoming face-to-face talks between the two sides’ top negotiators.
The first direct contact between the two sides’ leading trade negotiators since the meeting between US President Donald Trump and his Chinese counterpart Xi Jinping last month in Osaka, Japan was initiated by the US, according to Chinese state media reports.
It took the form of a telephone conversation between China’s Vice-Premier Liu He, US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin.
Also joining the call was Chinese Commerce Minister Zhong Shan in his first direct participation in the long-distance dialogue.
Zhong’s presence raised speculation that the US was anxious to confirm China’s commitment to purchase American farm products ahead of the formal resumption of trade talks. On Tuesday, White House economic adviser Larry Kudlow confirmed the US’s desire for a quick agreement on agricultural goods when he spoke at an event hosted by CNBC.
“President Xi is expected, we hope in return for our accommodations, to move immediately, quickly, while the talks are going on, on the agriculture [purchases],” Kudlow said. “That’s very, very important,” he said.
Kudlow described the Tuesday night telephone conversation as “constructive” and said the two sides were arranging face-to-face talks soon, but he said they would not be smooth sailing.
In contrast, a brief report on China’s state television said only that the negotiators had exchanged views on implementing the consensus of the leaders’ meeting in Osaka.
Geng Shuang, a spokesman for China’s foreign ministry, on Wednesday reiterated that any decisions on buying American agricultural products must be agreed on by the two sides.
“Agricultural product trade is an important issue for discussion between China and the US,” he said. “A resolution of the issue can only be found by both sides on a foundation of equality and mutual respect.”
The meeting between the two presidents on the sidelines of the G20 in Japan was very different to their encounter in Argentina in November, according to a source who was briefed on the talks.
For the Buenos Aires meeting, the source said, Xi prepared 40 pages of detailed and specific trade issues. In Osaka, instead of dwelling on trade issues, Xi talked about building a new trajectory for the overall relationship and a framework for the two sides to continue discussions.
The source also said that Yu Jianhua, a veteran on trade issues who was appointed vice-minister for commerce before the trade talks faltered in May, had been “indirectly” involved in the trade talks.
The South China Morning Post has previously reported that China would be reluctant to buy more unless the US delivered on its promise to effectively lift a supply ban on Huawei.
US Commerce Secretary Wilbur Ross said on Tuesday that the US would allow American companies to sell technology to the blacklisted Huawei where there was no threat to US national security.
He Weiwen, former economic and commercial counsellor at the Chinese consulate in New York and San Francisco, said increased agricultural imports from the US were not a big problem, as China had repeatedly indicated its willingness to make such a move.
However, any such purchases should respect market rules, abide by the principles of the World Trade Organisation, and should also be based on China’s market demand, rather than be dictated by administrative fiat, he said.
“Buying agricultural products is not a big problem for China, but it has great influence on President Trump’s election campaign,” He said. “The purchase does not serve US politics, but should serve China’s own interests.”
Even when Beijing and Washington return to the negotiating table, and with most of the text of an agreement drafted, the two sides will face a challenge about how to reach consensus on the remaining, but thorny, issues.
China’s bottom line for a trade deal is the removal of all existing tariffs, respect of its sovereignty and a balanced text. But for the US, tariffs are its main bargaining chip and Lighthizer has made clear he wants structural changes to China’s system, which could be seen to impinge on China’s sovereignty.
“For China, the import of more agricultural products is just a drop in the bucket to reduce the US trade deficit with China, while the big issue is tariffs,” He said.
“This was already what the Chinese side wanted to do last year, but it was dropped after the US side exited from the trade talks,” he said.
“But if China imports large amounts of US agricultural goods, it will lead to a reduction in foreign exchange reserves and there will be issues of domestic market excess, so the Chinese side will not fully accept the quantities proposed by the US side. There will be a difficult game of bargaining back and forth on this.”
Additional reporting by Sarah Zheng