Last night, we reported that President Trump had decided to delay a 5% increase in tariffs on Chinese goods by two weeks, supposedly out of respect for Beijing and its celebration of 70 years of Communist Party rule on Oct. 1. Trump's decision came less than a day after China waived 25% tariffs on 16 types of US goods to try and "sweeten" the deal ahead of trade talks next month.
Now, in the latest tit-for-tat deescalation of trade tensions, Bloomberg reports that Beijing is considering whether to permit imports of American agricultural products including soybeans and pork, a move that would further alleviate trade tensions while bolstering support for Trump in the midwestern farm states that comprise a sizable chunk of his base. Foodstuffs and farm products were notably not included in the 16 goods exempted from tariffs earlier this week. According to the Ministry of Commerce, Chinese companies have started asking about prices for US soybeans and pork, a sign that they could restart imports in the near future.
Reopening the door to US soybean imports would come at a critical time for Beijing, which this week announced that it would start allowing imports of soy meal from Argentina to offset the drop in US raw soybeans. China halted imports of US farm products in August as trade talks broke down and President Trump ordered more tariffs on Chinese goods.
As fallout from the trade war hits the US and Chinese economies, pressure for a deal is rising.
Chinese officials welcomed Trump's decision to postpone US tariffs, Ministry of Commerce spokesman Gao Feng said at a press briefing on Thursday. Gao noted that mid-level teams of trade negotiators will soon meet to prepare for higher level talks.
China has been struggling with a weak yuan, factory-price deflation and falling exports. Meanwhile, in the US, factory activity unexpectedly contracted in August for the first time in three years, highlighting the impact of slowing global growth and the trade war.
"Trump’s goodwill gesture suggests that the trade war is starting to bite and the US may be more eager to close a deal," said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte. in Singapore. "The clock is ticking and Trump’s approval ratings are sliding, with manufacturing now in recession."
Still, despite the latest round of goodwill gestures, the two sides remain far apart on fundamental issues: Beijing insists that the US must drop all trade war tariffs as part of any deal, while Washington is demanding concessions on IP and state subsidies that Beijing has so far refused.
WSJ reported Thursday morning that Beijing is hoping to narrow the scope of negotiations with the US to only focus on trade matters, and put thorny national security issues on a separate track. Senior Chinese officials hope this approach will offer a path out of the current impasse, before a team of mid-level Chinese officials heads to Washington next week to prepare for the next round of high-level talks.
Will these 'goodwill' gestures lead to a breakthrough toward a deal? Or will they prove to be the latest in a series of false starts as the trade war nears the 18th month mark?