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The US and China are in talks to try to avoid a trade war

The US and China are in talks to try to avoid a trade war
Posted at 8:16 AM, Mar 26, 2018

The United States and China are acting tough over trade, but they're also busy talking to try to stop the situation spiraling out of control.

President Donald Trump ramped up tensions last week by ordering tariffs on about $50 billion worth of Chinese goods just weeks after announcing of sanctions on steel and aluminum imports. Beijing has responded with plans to target $3 billion worth of US products and warnings that it's ready to inflict more pain.

The moves have fueled fears that the situation could escalate into a full-blown trade war between the world's two largest economies. But Treasury Secretary Steven Mnuchin said Sunday that he's been talking to Chinese officials in an effort to prevent that.

"We're not afraid of a trade war, but that's not our objective," he said in an interview on Fox News.

"We are going to proceed with our tariffs ... we're also working on investment restrictions," Mnuchin said. "But we are simultaneously having negotiations with the Chinese to see if we can reach an agreement."

The US government wants China to do a lot more to open up its vast economy to US businesses and bring down the massive trade deficit between the two countries.

Trump has set a target of cutting the deficit in goods with China by $100 billion. It soared to $375 billion last year, according to US figures.

Mnuchin said the United States wants China to do away with rules that require foreign companies to set up joint ventures with Chinese firms in many industries, such as automobiles, and to stop forcing American businesses to hand over valuable intellectual property in order to operate in China. Intellectual property theft is the reason the Trump administration gave for the planned $50 billion in tariffs on Chinese goods.

Mnuchin and US Trade Representative Robert Lighthizer detailed the US requests in a letter to a top Chinese economic official late last week, according to theWall Street Journal. They included asking Beijing to reduce tariffs on American cars, increase spending on US semiconductors and provide greater access to the Chinese financial sector, the Journal reported, citing unidentified people with knowledge of the matter.

A Treasury Department spokesperson declined to confirm the report.

"We are having very productive conversations with them," Mnuchin told Fox, adding that he was "cautiously hopeful" that the two sides could reach a deal. But in the absence of "an acceptable agreement that the president signs off on," the Trump administration will press ahead with the tariffs and other measures, he warned.

China's point man for the talks is Liu He, a Harvard graduate who is one of President Xi Jinping's most trusted advisers. Liu was in Washington for talks with US officials the week that Trump announced plans for the tariffs on steel and aluminum and was recently appointed to the position of vice premier.

Mnuchin and Liu spoke as recently as this weekend.

"Secretary Mnuchin called Liu He to congratulate him on the official announcement of his new role," the Treasury spokesperson said. "They also discussed the trade deficit between our two countries and committed to continuing the dialogue to find a mutually agreeable way to reduce it."

China's official news agency Xinhua also reported the conversation, saying that Liu criticized the US allegations of Chinese intellectual property theft and warned Mnuchin that China "has the capability to safeguard its national interest."

But Liu also said that China "hopes to see both sides remain sensible and work together to preserve the overall stability of China-US trade relations," according to the Xinhua report.

Some experts are skeptical that Beijing will give Trump what he wants.

"China may be able to come up with some big ticket imports to allow it to appear to be trying to reduce the bilateral trade imbalance," Mark Williams, chief Asia economist at research firm Capital Economics, wrote in a note to clients on Friday. "But China won't be able to reduce the annual imbalance by $100bn as Mr Trump has demanded."

And "the chances of China making substantive changes to its practices on intellectual property are also low," Williams said, adding that the practices are seen in Beijing as "a key element" of efforts to develop the Chinese economy.