The US President Donald Trump and his Chinese counterpart, Xi Jinping, have agreed to a new ceasefire in their trade war by removing the immediate threat to the world economy, although the lasting peace is still away.
The two sides have agreed to resume trade talks that ended last month and the US has agreed not to impose new customs duties on Chinese imports.
“We had a very good meeting with the Chinese president”, said Donald Trump after talks at the G20 summit in Japan. “Excellent, I would say excellent. As good as it should have been. We discussed many things and we are on the right track again”, added the US President.
The return on the negotiating table puts an end to a six-week impasse that worries companies and investors and at least temporarily reassures the fears that the two largest economies in the world are heading for a new Cold War. However, it is still unclear whether they can overcome the differences that have led to the failure of the previous truce reached at the G20 summit last year.
The fears led investors to expect monetary policy mitigation from the central bank and move to asset-haven. The yields on 10-year US Treasuries collapsed to its lowest level for years. The Japanese yen has appreciated, and the US dollar has dropped its exchange rate against major currencies, including the Chinese yuan. Stock markets were moving up or down in any news related to the new trade war.
Following the failure of talks on May 10, Donald Trump raised tariffs on Chinese imports worth 200 billion USD from 10% to 25%. In recent days, he said the next step could be the imposition of a 10% duty on all remaining imports from China, worth about 300 billion USD, from smartphones to baby clothes.
Another major hurdle is putting Huawei Technologies on the blacklist for fear of national security. The measure threatens to cut the Chinese giant’s access to US technology. Donald Trump administration has been lobbying allies around the world not to buy Huawei equipment, which, according to the US, could be used for espionage in favor of China.
On the first day of the Friday summit, Xi Jinping promised to open up the Chinese economy and at the same time criticized the US, without mentioning them specifically, about their attack on the world trading system.
In a statement to African leaders on Friday, he did not quite disguise his criticism of Trump’s “America First” trade policy, warning not to use “rude practices”. He added that “any attempt to place one’s interests first and to undermine the interests of others will not gain popularity”.
He criticized the United States for Huawei and said the G20 should keep the “completeness and vitality of global supply chains”. China has urged Huawei to be removed from the blacklist this week to reach an agreement.
Donald Trump pointed to a decrease in the US trade deficit with China, which reached 419 billion USD record last year as its primary target. But later, his administration’s attention focused on limiting Chinese access to American innovations. The Chinese government reacted with an increasingly rhetoric stating its readiness for a long battle.
Other disagreements that led to the failure of the talks were related to the theft of intellectual property and subsidies to the industry, and when and how to revoke the duties that Trump had made in his most powerful economic instrument.
Donald Trump: We are winning the trade war with China
US President Donald Trump announced that his country was “winning” the trade war with China a day after reaching a new ceasefire with Chinese leader Xi Jinping.
During his visit to South Korea after the G20 in Japan, Donald Trump said at a news conference that the Federal Reserve “did not help us at all” in the trade conflict with Beijing.
“However, we are winning and our victory is great because we have created the best economy”, said the US president.
The White House is yet to present the details of the agreement between Donald Trump and Xi Jinping, and there is still uncertainty about how the relationship between the two countries will continue to develop. Following a meeting with his Chinese counterpart, the US president said he would freeze for an indefinite period the introduction of new, higher duties on Chinese imports while allowing US companies to continue their business with the Chinese technology giant Huawei Technologies Co.
Donald Trump has repeatedly insisted that China suffers the consequences of the imposed duties, rejecting the allegations by economists that extra costs are being borne by American companies and consumers in the form of higher prices.
“China devaluates its currency to pay for the duties”, said Donald Trump. Chinese yuan has weakened against the US dollar over the past year, helping to partially offset the impact of US duties, but according to the Beijing authorities, the process is a consequence of market forces. “And in addition to devaluing, they also inflow a lot of money into their economic model. They pour money. We do not. We are getting back. We raise interest rates, and they lower interest rates”, added he.