While there was much fanfare over last week's summit at Mar-A-Lago between the presidents of the US and China, the tangible results to emerge from what was the year's most important political meeting, aside for a few photo ops, were few and far between. That may change, at least for purely optical purposes, after a report in the Financial Times that China will "offer concessions" to the US to avoid a trade war, including better market access for US financial sector investments and beef, after the nation’s leaders decided last week in Florida they needed results on trade talks within 100 days.
That said, as the FT itself concedes, "the two concessions on finance and beef are relatively easy for Beijing to make", especially since one wonders which US firms are in a rush to enter the "bubble-bust" Chinese financial markets which as we described two weeks ago, are persistently on the edge of collapse- not to mention a banking system which has at least $6 trillion in bad debts - and only ever greater government intervention in the form of various Beijing backstops have kept afloat.
In any case, for those brave enough to rush after Chinese financial "bargains", they will now be allowed to hold majority stakes in securities and insurance companies which at present they can not do. The country’s largest companies in these sectors, such as Citic Securities and China Life Insurance, have achieved enormous scale which as the FT notes "makes them formidable competitors for new entrants to the market." Which once again begs the question: which private investor would want to compete with the Chinese government which is the de facto owner of all financial enterprises in China?
It is also the case that while US companies are invited to invest domestically, this would result in the creation of more Chinese jobs and perhaps boost China's current account, without actually benefiting US-Sino trade relations.
Additionally, the FT reports that China is also willing to end a ban on US beef imports that has been in place since 2003, "and buy more grains and other agricultural products as it seeks to reduce tensions stemming from the $347bn annual trade surplus in goods that it enjoys with its biggest trading partner."
Putting the relatively modest market in context, the US currently exports roughly $6 billion in beef around the world, with Japan, the biggest import market, accounting for about a quarter. It is unclear how big the potential Chinese market would be, and whether it could compete with other foreign importers. That said, the FT notes that "beef exporters have complained about the lingering Chinese ban on US imports, which was introduced after a BSE scare in the US herd."
The bottom line: "while a comprehensive Sino-US investment treaty remains a distant prospect, both sides are hoping to achieve a number of smaller trade deals in the coming three months." The real take home message, however, is that if China's concessions are only aimed at finance and agriculture, is that China will - at least for the time being - not touch its 25% auto tariffs, arguably the most controversial issue in Chinese-US trade relations.
US officials are pressing their Chinese counterparts to lower their current 25 per cent tariff on automotive imports. Beijing in return would like greater protection for Chinese investment in the US, which tripled last year to more than $45bn, and also for Washington to relax restrictions on the sale of certain high-tech products to China. The Chinese government may simply commit to buy more US imports in the same way that Japan did in the 1980s.
Then there is the issue of steel exports, a long-running topic of contention between the two countries: here, too, China is not budging.
“We’re not going to export a whole lot of steel to China,” said Chad Bown of the Peterson Institute. Thanks to a state-directed investment stimulus unleashed in the wake of the global financial crisis, Chinese steelmakers now produce more steel than the rest of the world combined. With the Chinese economy now growing at its slowest pace in a quarter century, reduced demand at home has led to a surge in steel exports, causing global prices to collapse.
Still, with Trump's economic successes few and far between, the president will gladly take any "concessions" the Chinese offer, even if it means little in the grand scheme of trade relations between the two nations.
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Meanwhile, in a separate report, Axios reported that the Trump administration is preparing an executive order that would probe "unfair" product dumping from foreign companies and could result in tariffs on a wide range of products. Here is what Axios' Jonathan Swan said he has learned so far:
- Steel and aluminum will be targeted.
- Other products, including household appliances, could be targeted as well.
- If the investigations result in new import duties it could make some consumer goods more expensive and could hurt the stock prices of American companies that rely on cheap steel imports. A good number of American manufacturing companies, however, could benefit from this hit to their low-cost competitors.
A White House official was cited as saying this investigation is part of Trump's effort to protect American jobs and end unfair trade practices like dumping and foreign government subsidization.
"The administration will use the results of that investigation to determine the best path forward, which could potentially include everything from no action at all to the levying of supplemental duties," the White House official said. "But whichever action we take will be informed by the results of the investigation and not by predetermined conclusions."
Axios further adds that Wilbur Ross is the point man on this executive order, which could arrive as early as late April. "But there's no point getting too wedded to that timeline, because Trump has slowed the pace of executive actions and this is an especially sensitive one: If it's clumsy, foreign trading partners could see this as the first shot in a trade war."
Keep in mind this EO would only lead to a probe, no definitive action yet. So putting it in context, if the investigation does lead to penalties on foreign trading partners, "it will be seen a big win for Steve Bannon, Stephen Miller, Peter Navarro, and other economic nationalists in Trump's orbit. Given the Syria strikes and Bannon's demotion from the NSC, their clout has appeared to diminish. The Goldman wing, meanwhile, will likely oppose aggressive trade moves."
Which, disappointingly, is what the Trump narrative in recent days has boiled down to - which camp is winning, the "nationalist" or the "Goldman" one. For now the score is firmly for the latter.