China has offered United States (US) President Donald Trump a US$200 billion reduction in its annual trade surplus with the US by increasing imports of American products and other steps, said a Trump administration official.
China made the offer during talks in Washington this week as Chinese Vice Premier Liu He visited to try to resolve a trade dispute, the official said, speaking on condition of anonymity. Liu met with Trump Thursday afternoon at the White House. The official didn’t describe the US response.
US officials conveyed the president’s goal for a fair-trading relationship with China and the two sides agreed to continue the discussions on Friday, the White House said in a statement. China’s Ministry of Commerce and the State Council Information Office didn’t initially respond to requests for a comment.
A US$200 billion reduction in the US trade gap with China by 2020 was on a list of demands the Trump administration made earlier this month as Treasury Secretary Steven Mnuchin led a delegation to Beijing. The US merchandise trade deficit with China hit a record US$375 billion last year.
The US had earlier made additional demands, including a halt to subsidies and other government support for the Made in China 2025 plan that targets strategic industries from robotics to new-energy vehicles. China had made its own demands, including giving equal treatment to its investment, and warned US companies may be excluded from measures to open its economy.
A deal to cut the deficit, if confirmed, "is good news for market sentiment," said Dariusz Kowalczyk, senior emerging-market strategist at Credit Agricole SA in Hong Kong. "That said, China would suffer pressure on GDP growth as a result and would need to boost domestic demand and debt in the economy through monetary easing and allowing more credit."
The yuan could weaken on the news given expectations for a deterioration of China’s balance of payments, while Chinese government bond yields may come under downward pressure, said Kowalczyk.
The Trump administration has threatened to impose tariffs on as much as US$150 billion of Chinese imports to the US as tensions over trade have escalated. Trump expressed doubt before his meeting with Liu that China and the US would come to an agreement to avoid a damaging trade war.
President has doubts
“Will that be successful? I tend to doubt it,” Trump said during a press briefing on Thursday with NATO Secretary-General Jens Stoltenberg. “The reason I doubt it is because China’s become very spoiled.”
Shane Oliver, head of investment strategy at AMP Capital Investors Ltd in Sydney, said the Chinese proposal is “a positive sign that a full-on trade war may be averted.”
“By making a significant offer to the US it indicates that China is taking the negotiations very seriously,” Oliver said. “Much will depend on the details and time period and later in terms of the implementation.”
The US and China were expected to exchange new trade proposals during the Washington talks, Trump economic adviser Larry Kudlow said earlier Thursday. Mnuchin is leading the talks with Liu, along with Commerce Secretary Wilbur Ross and US Trade Representative Robert Lighthizer, according to the White House.
Victor Shih, a professor at the University of California in San Diego who studies China’s politics and finance, said he finds an agreement to cut the US deficit by US$200 billion "difficult to contemplate."
"Even with a drastic reallocation of Chinese imports of energy, raw materials and airplanes in favour of the US, the bilateral trade deficit may reduce by US$100 billion," he said. "A US$200 billion reduction would mean a drastic reduction in Chinese exports to the US and a dramatic restructuring of the supply chain."
Market access
Kudlow said the US focus is on China opening market access to American companies by lowering their trading barriers and addressing US concerns over the theft of intellectual property.
“American ownership of its own companies in China must be permitted,” Kudlow said. “We are going to have serious talks dealing with a difficult trade situation that needs to be fixed.”
Trump also said on Thursday that his decision to order a review of US penalties on China’s ZTE Corp. came directly at the request of Chinese President Xi Jinping. “President Xi, asked me to look at it. I said I would look at it,” Trump said, adding “But anything we do with ZTE is always – it’s just a small component of the overall deal."
In a surprise move, Trump on Sunday said that the US was considering ways to help get ZTE ‘’back in business fast,” fuelling speculation of a softening of his get-tough position on China. The Commerce Department blocked ZTE’s access to US suppliers last month, saying the company had violated a 2017 sanctions settlement related to trading with Iran and North Korea and then lied about the violations. – Bloomberg