Via Financial Times

After five months of constant escalations in their long-running trade war with the US, Chinese officials on Friday finally secured a respite.

In return for a series of modest concessions, most of which had been offered by President Xi Jinping’s administration in previous negotiating rounds, Donald Trump agreed to suspend another set of tariff increases originally scheduled to take effect on October 15.

The truce sets the stage for a series of much higher-stakes negotiations after Mr Xi and Mr Trump’s expected encounter on the sidelines of the Asia Pacific Economic Conference, scheduled for November 16-17 in Santiago, Chile, where Friday’s agreement will be finalised.

The two sides are still a long way from a final settlement that addresses much more contentious issues, such as Chinese government support for strategic industries and state-owned enterprises, which Mr Trump had hoped to reach before his 2020 re-election campaign kicks off in earnest.

Chinese negotiators, however, believe that time is on their side and they can continue to stonewall Mr Trump and his lead negotiator, US Trade Representative Robert Lighthizer, on any “systemic” reforms that they fear would weaken the Chinese Communist party’s grip over the world’s second-largest economy.

In private, Chinese officials say they are lucky Mr Trump waited a year before launching his trade assault in the spring of 2018, giving his negotiators only about 18 months to confront China before domestic political pressures would begin to hem them in.

The US president wants relief for his farm-state supporters, who have borne the brunt of China’s counter-tariffs, and a soaring stock market to help boost his re-election prospects.

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“The US economy is under pressure and Mr Trump is facing an election,” says one Chinese official. “Previously Trump wanted to ratchet up tensions but now he needs to lower them.”

Mr Xi faces pressures of his own. China’s third-quarter GDP growth rate, which will be announced on October 18, may have slipped below six per cent for the first time in decades. Authorities are also still struggling to contain an African swine fever epidemic, which has decimated the country’s pig herd and sent prices for pork and other meats soaring.

But unlike the US Federal Reserve, China’s central bank has so far refrained from any significant rate cuts and the country’s trade negotiators, led by Vice-Premier Liu He, are more than happy to appease Mr Trump by boosting purchases of US pork, soyabeans and other agricultural exports.

“The US is faced with increasing downward pressure on its economy and has limited room for [monetary] policy adjustment,” says Xu Hongcai, deputy director of State Council think-tank.

By contrast Yi Gang, head of the People’s Bank of China and a member of Mr Liu’s negotiating team, boasted late last month that “we are not in a rush to ease like other central banks . . . there is still room for normal monetary policy”.

Despite Beijing’s confidence that it has a stronger hand to play than Washington does in the trade negotiations, Chinese officials also remain extremely distrustful of Mr Trump and wary of his administration’s determination to “decouple” the world’s two largest and deeply interconnected economies.

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In their view, Mr Trump has embarrassed Mr Liu on at least five separate occasions since he took office by discarding understandings the vice-premier thought had been reached — or by announcing China tariff increases or sanctions on the eve of one of his many visits to Washington.

China’s official Xinhua news agency, for example, only referred to “substantial progress achieved” in a range of areas — a far more cautious characterisation than the US president’s claim that the two sides had reached a “substantial phase-one deal”.

On Monday the Trump administration said it would move to limit US technology exports to eight emerging Chinese tech companies for providing surveillance and other equipment used in a sprawling prison network in the northwestern region of Xinjiang.

“There are no real [non-US] sourcing alternatives, especially for the storage devices critical to surveillance companies,” says one US executive. “[The export limits] could potentially kill companies Beijing regards as potential national champions.”

Even the interim agreement finally reached on Friday was the subject of some last-minute taunting on Twitter by Mr Trump — raising for Chinese officials the possibility that the US President might instead embarrass Mr Liu in person when they met at the White House. “[China] wants to make a deal, but do I?” Mr Trump tweeted on Thursday. “I meet with the Vice Premier tomorrow at the White House,” he added, as if promoting the next instalment in a reality-TV series.

“What are Chinese officials supposed to make of statements like that,” asks Andy Mok at the Center for China and Globalisation, a Beijing think-tank. “Does he want a deal to be done or not?”

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Additional reporting by Xinning Liu