With China’s trade surplus with the United States at $375 billion, it clearly has much to lose. The Trump Administration has demanded that China cut this surplus by at least $100 billion.
As per a source familiar with the discussions at hand, officials from the Trump administration are asking pushing China to:
allow foreign majority ownership of financial services firms
cut its tariffs on imported cars
and buy a lot more U.S. produced semiconductors
in order to dodge hefty tariffs on a host of Chinese exports and avert a potential trade war.
Peter Navarro, the White House trade adviser has confirmed that President Donald Trump has asked Mnuchin and Lighthizer to try to resolve trade differences with China.
“We’re hopeful there that China will work with us to basically address some of these practices,” said Navarro to CNBC television.
Clearly at a disadvantage, given the sums that it could potentially lose in the event of a trade war, Chinese Premier Li Keqiang stated on Monday, China and the U.S. should continue to negotiate while repeatedly pledging that American businesses will have access to China’s markets.
Following the U.S pressure, Li told a conference attended by chief executives from across the globe, China would treat foreign and domestic firms on an equal footing, it will not force foreign firms to transfer their proprietary technologies to their Chinese joint venture partners and it would strengthen its intellectual property rights.
Unless these promises are translated to concrete ground realities, Washington is unlikely to be placated in what amounts to just a lot of words.
China’s state media has been spewing out a steady stream of fierce rhetoric lambasting the U.S. for being a “bully” and warning of retaliation.
Standing his ground, Mnuchin has made it clear, “We are proceeding with these tariffs, we’re not putting them on hold unless we have an acceptable agreement that the president signs off on”.
With their backs against the wall, Chinese officials are working to finaluse rules by May, instead of an earlier target of June, which will allow foreign financial groups to have majority stakes in Chinese securities firms, reported the Financial Times.
“I anticipate that for political reasons it would be logical for China to respond, because countries do,” said Stephen Schwarzman, Blackstone Group’s Chief Executive on Monday on the sidelines of the Beijing conference where Li spoke.
“That’s why I view this more as a skirmish, and I think the interests of both countries are served by resolving some of these matters.”
China hhas called on members of the World Trade Organization to unite and oppose Trump’s proposed tariffs targeting its alleged theft of intellectual theft property, saying they should “lock this beast back into the cage of WTO rules.”
On Friday, China had responded to the imposition of U.S. tariffs on its steel and aluminum sector by declaring plans to levy additional duties, of up to $3 billion, on U.S. imports, including fruit, nuts and wine.
Further, China could also inflict some damage to U.S. multinationals that increasingly rely on China for a substantial portion of their total revenues, said Alex Wolf, senior emerging markets economist at Aberdeen Standard Investments.
“This could put U.S. companies such as Apple, Microsoft, Starbucks, GM, Nike, etc in the firing line,” wrote Wolf in a note.
China’s retaliatory options includes raise the tax burden on U.S. MNCs in China; block U.S. companies from competing for government projects, increase regulatory hurdles on U.S firms; ban travel; stop providing export licenses of key intermediate goods among others.