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Exclusive: China sends written response to U.S. trade reform demands - U.S. government sources

[November 15, 2018] By Jeff Mason and David Shepardson

WASHINGTON (Reuters) - China has delivered a written response to U.S. demands for wide-ranging trade reforms, three U.S. government sources said on Wednesday, a move that could trigger more formal negotiations to resolve a withering trade war between the world's top economies.

U.S. President Donald Trump has imposed tariffs on $250 billion of Chinese imports to force concessions from Beijing on the list of demands that would change the terms of trade between the two countries. China has responded with import tariffs on U.S. goods.

Trump is expected to meet Chinese President Xi Jinping on the sidelines of a G20 summit in Argentina at the end of November and in early December.

The U.S. president has repeatedly railed against Beijing over intellectual property theft, industrial subsidies, Chinese entry barriers to American businesses and the U.S. trade deficit with China.

Three U.S. government sources told Reuters on Wednesday that China had sent a response to U.S. demands on those and other issues, but gave no further details on its contents. It was unclear if the response contained concessions that would satisfy Trump's demands for change.

While two industry sources familiar with the contents of the response said it was largely a restatement of previous Chinese commitments, it was seen as a necessary starting point for continued negotiations.

The two sides have been far apart during their months-long tariff dispute.

One of the sources briefed on China's response said it reiterated pledges Xi has made in recent speeches, and demanded that the United States lift tariffs, including those set by the Section 232 investigation into steel and aluminum imports.

"They are not close to a favorable deal on trade. Not in the same universe," the Washington-based source said.

A U.S. team led by Treasury Under Secretary David Malpass discussed trade issues with a Chinese team via videoconference on Tuesday, a U.S. Treasury spokesperson said on Wednesday.

JANUARY TARIFF TRIGGER

The United States had said it would not start formal negotiations on trade until it saw concrete proposals from China to address its concerns.

Earlier this month, after a phone conversation with Xi, Trump said he thought the United States would make a deal with China on trade but stood ready to levy more tariffs on Chinese goods if no progress is made.

Chinese Commerce Ministry spokesman Gao Feng, asked on Thursday about the Chinese response, said that "high-level" contact had resumed since Trump and Xi spoke by phone.

"Working teams are maintaining close contact to earnestly implement the consensus reached by the two leaders by telephone," he told a regular weekly briefing.

The tariff rate on $200 billion in Chinese goods is set to increase to 25 percent from 10 percent on Jan. 1. Trump has also threatened to impose tariffs on all remaining Chinese imports, about $267 billion worth, if Beijing fails to address U.S. demands.

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Containers are seen at the Yangshan Deep Water Port in Shanghai, China April 24, 2018. REUTERS/Aly Song/File Photo

Future trade talks could hinge on whether or not tariffs rise on Jan. 1.

One scenario suggested by analysts is that Trump and Xi could agree to a ceasefire in Argentina that would prevent further tariffs from taking effect while negotiations continued.

U.S.-China Business Council President Craig Allen told Reuters last week that he thought it was likely China would withdraw from any process set at the G20 if the Trump administration went forward with raising the tariff rate.

The two countries resumed talks after the call between the two leaders, ending a three month hiatus that saw relations deteriorate as the United States accused China of interfering in U.S. domestic politics and seeking to undermine Trump.

U.S. Vice President Mike Pence said on Tuesday that Beijing needed to change its behavior to avoid a new cold war with the United States.

China must offer concessions on intellectual property theft, forced technology transfer, restricted access to Chinese markets and respect for international rules and norms, among other issues, he said.

Responding to Pence's remarks, Chinese Foreign Ministry spokeswoman Hua Chunying said China had always been a "model student" when it came to respecting international rules and norms.

"China respects U.S. sovereignty, security, and development interests," she told a daily news briefing in Beijing.

"The U.S. side should also respect China's sovereignty, security, and development interests, and respect the development path chosen by the Chinese people in line with its own national conditions."

In comments made before the Chinese response, Wu Baiyi, the director of the Institute of American Studies at the state-run Chinese Academy of Social Sciences, said that a Jan. 1 tariff increase would imperil efforts to reverse trade tensions.

"This is one of the major goals that they (Chinese officials) are working hard on – to prevent those tariffs from coming into force early next year. But it will depend on both sides."

(Additional reporting by Steve Holland and David Lawder in WASHINGTON and Michael Martina, Stella Qiu, Christian Shepherd and Se Young Lee in BEIJING; Writing by Simon Webb; Editing by Tim Ahmann, Cynthia Osterman & Simon Cameron-Moore)

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