U.S., China move trade talks to Shanghai amid deal pessimism

U.S. and Chinese trade negotiators shift to Shanghai this week for their first in-person talks since a G20 truce last month, a change of scenery for two sides struggling to resolve deep differences on how to end a year-long trade war.

Expectations for progress during the two-day Shanghai meeting are low, so officials and businesses are hoping Washington and Beijing can at least detail commitments for “goodwill” gestures and clear the path for future negotiations.

These include Chinese purchases of U.S. farm commodities and the United States allowing firms to resume some sales to China’s tech giant Huawei Technologies.

President Donald Trump said on Friday that he thinks China may not want to sign a trade deal until after the 2020 election in the hope that they could then negotiate more favorable terms with a different U.S. president.

“I think probably China will say “Let’s wait,” Trump told reporters at the White House. “Let’s wait and see if one of these people who gives the United States away, let’s see if one of them could get elected.”

For more than a year, the world’s two largest economies have slapped billions of dollars of tariffs on each other’s imports, disrupting global supply chains and shaking financial markets in their dispute over China’s “state capitalism” mode of doing business with the world. 

Trump and Chinese President Xi Jinping agreed at last month’s G20 summit in Osaka, Japan, to restart trade talks that stalled in May, after Washington accused Beijing of reneging on major portions of a draft agreement — a collapse in the talks that prompted a steep U.S. tariff hike on $200 billion of Chinese goods.

Trump said after the Osaka meeting that he would not impose new tariffs on a final $300 billion of Chinese imports and would ease some U.S. restrictions on Huawei if China agreed to make purchases of U.S. agricultural products.

Since then, China has signaled that it would allow Chinese firms to make some tariff-free purchases of U.S. farm goods. Washington has encouraged companies to apply for waivers to a national security ban on sales to Huawei, and said it would respond to them in the next few weeks.

But going into the talks, neither side has implemented the measures that were intended to show their goodwill. That bodes ill for their chances of resolving core issues in the trade dispute, such as U.S. complaints about Chinese state subsidies, forced technology transfers and intellectual property violations.

U.S. officials have stressed that relief on U.S. sales to Huawei would apply only to products with no implications for national security, and industry watchers expect those waivers will only allow the Chinese technology giant to buy the most commoditized U.S. components.

Reuters reported last week that despite the carrot of a potential exemption from import tariffs, Chinese soybean crushers are unlikely to buy in bulk from the United States any time soon as they grapple with poor margins and longer-term doubts about Sino-U.S. trade relations. Soybeans are the largest U.S. agricultural export to China.

“They are doing this little dance with Huawei and ag purchases,” said one source recently briefed by senior Chinese negotiators.