LDN - Business

U.S., China fail to agree on trade issues, casting doubt on other issues

[July 20, 2017] By David Lawder and Lesley Wroughton

WASHINGTON (Reuters) - The United States and China failed on Wednesday to agree on major new steps to reduce the U.S. trade deficit with China, casting doubt over President Donald Trump's economic and security relations with Beijing.

The annual economic dialogue session in Washington ended with canceled news conferences, no joint statement and no new announcements on U.S. market access to China.

The two sides had a "frank exchange" but failed to agree on most major bilateral trade and economic issues that were important to the United States, a senior U.S. official said on condition of anonymity because he was not authorized to speak publicly.

These included U.S. demands for access to China's financial services markets, reducing excess Chinese steel capacity, reductions in auto tariffs, cutting subsidies for state-owned enterprises, ending Chinese requirements for data localization and lifting ownership caps for foreign firms in China, the official said.

"China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve," U.S. Treasury Secretary Steven Mnuchin and U.S. Commerce Secretary Wilbur Ross said in a brief statement, highlighting a rare point of consensus.

The Chinese embassy in Washington cast the talks in a positive light, saying in a statement that both sides had acknowledged "significant progress" on the 100-day talks and would to work together to reduce the trade deficit.

"The two sides will expand areas of cooperation in services and increase trade in services; expand mutual investment, and create a more open, equitable, transparent and convenient investment environment," the embassy said.

Both sides agreed that one of the solutions to address the trade imbalance is for the United States to expand exports to China, instead of reducing imports from China, said Chinese Vice Finance Minister Zhu Guangyao after the conclusion of the talks.

To address the imbalance, China has been urging the United States to remove regulations on export control and increase the exports of high-tech products to China, the official Xinhua news agency cited Zhu as saying.

China will push for this in a one-year action plan for economic cooperation which both sides discussed, Zhu said.

FAR FROM MAR-A-LAGO

The session had been billed as a follow-up to Trump's first meeting with Chinese President Xi Jinping at his Mar-A-Lago, Florida, estate in April when Trump hailed Xi's cooperation in curbing the threat from North Korea. Trump said that this would lead to better trade terms for China.

The two leaders launched a 100-day economic plan that has produced some industry-specific announcements, including the resumption of American beef sales in China and pledged to grant limited U.S. access to some financial services sectors.

But there have been no new initiatives since, and Trump has grown increasingly frustrated with China's lack of pressure on North Korea. His administration has threatened new sanctions on small Chinese banks and other firms doing business with Pyongyang.

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Flags of U.S. and China are placed for a meeting between Secretary of Agriculture Sonny Perdue and China's Minister of Agriculture Han Changfu at the Ministry of Agriculture in Beijing, China June 30, 2017. REUTERS/Jason Lee

Ross and Mnuchin said the U.S. position on the China trade relationship would be guided by "the principles of balance, fairness, and reciprocity on matters of trade will continue to guide the American position so we can give American workers and businesses an opportunity to compete on a level playing field."

China's delegation leader, Vice Premier Wang Yang, left the Treasury building without speaking to reporters. Earlier, he had warned that confrontation between the two countries would be damaging.

STEEL RALLY

Investors interpreted the negative signals from the talks and lack of new trade announcements as making it more likely that Trump would forge ahead with broad steel tariffs or quotas based on a national security review, sending steelmakers' shares soaring.

Shares of United States Steel Corp closed up 4.8 percent, while AK Steel rose 3.6 percent and Nucor rose 2.2 percent.

Trump, asked by a reporter at the White House after the stock market closed whether he would impose steel tariffs, said: "Could happen."

Potential steel tariffs, which could be announced in the coming weeks, were expected to be a difficult topic in the U.S.-China talks. Ross has blamed massive Chinese excess capacity for a global steel glut that is hurting U.S. producers.

Wednesday's deadlock was unsettling for U.S. business groups that had hoped to put more cracks in Beijing's market access barriers and obviate more aggressive measures from the White House that could destabilize trade ties.

"We are disappointed the Comprehensive Economic Dialogue ended at an apparent impasse. It is important for governments to take tangible steps to address long-standing issues and ensure the commercial relationship remains a source of stability in the overall relationship," said Jacob Parker, vice president of China operations at the U.S.-China Business Council.

Even if the U.S. and Chinese governments fail to agree on more substantive trade terms, corporate chief executive officers from the two countries pledged to deepen their cooperation and joint investment efforts.

Led by Blackstone Group CEO Stephen Schwarzman and Alibaba Group CEO Jack Ma, a group of 20 executives said they were committing to increase bilateral trade, including the export of U.S. agricultural goods, liquefied natural gas and consumer products to China.

"A stable, growing economic relationship between the United States and China is mutually beneficial to the people of our two countries and for the world," Ma and Schwarzman said in a statement.

(Additional reporting by Noel Randewich in San Francisco and Michael Martina and Ryan Woo in Beijing; Editing by James Dalgleish, Leslie Adler and Michael Perry)

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