US Ends Formal Economic Talks With China Ahead Of Trade Wars

Update: Well... ignore everything we wrote below, because as Bloomberg blasted moments ago: MALPASS SAYS HE MISSPOKE ON TALKS WITH CHINA BEING DISCONTINUED. Apparently nobody, anywhere know what is going on anymore:

“There hasn’t been a decision on the future of” the U.S.-China Comprehensive Economic Dialogue, or CED, says David Malpass, the U.S. Treasury undersecretary for international affairs, in Buenos Aires.

“I misspoke when I said it had discontinued”

“Secretary Mnuchin has high level talks with China. The CED had met last summer and talks stalled”

* * *

This coming Friday is when the Trump administration's previously announced 25% tariffs on imported steel and 10% for aluminum officially take effect, and while Canada, Mexico and Australia have been excluded from the protectionist measure, planned retaliation by China has triggered concerns over a global trade war. And confirming that trade - and broader economic and commercial - ties with China are set for a sharp deterioration, on Sunday the Trump administration ended a decade-old formal economic dialogue with China amid US concerns the country is becoming increasingly protectionist and moving backward on its promise to open its markets to foreign competition.

Speaking in Buenos Aires ahead of the Group of 20 finance ministers meeting, David Malpass, Treasury’s undersecretary for international affairs, said that "the administration is disappointed with China and because there wasn’t a path back toward a market orientation, I discontinued the China economic dialogue."

David Malpass

The halt of the main economic channel between the U.S. and China - known as the Comprehensive Economic Dialogue - ends conversations started under one of his predecessors, Hank Paulson, during the George W. Bush administration. Paulson singled out an economic track for the Treasury Department to lead, becoming the point-person on all such matters between the nations.

Still, the severance of ties sounds somewhat more extreme that the underlying reality: quoted by Bloomberg, Malpass said that rather than holding formal discussions, Secretary Steven Mnuchin has frequent private talks with senior-level officials in China to bring back focus to free-market capitalism, he said.

Call it graduated diplomatic escalations meant to find China's trigger point.

“One of the things we are doing is trying to keep open lines of communication with them even as we express concern” about the growing influence of China’s state-owned enterprises.

He also said that China’s movement toward market liberalization has "stalled or reversed" adding that "it’s become more clear that’s the case. We now see China’s political process moving away from a term limit."

Referencing the recent "perpetualization" of Xi Jinping, Malpass also highlighted a risk for the world from China’s autocratic rule, saying that the "risk of autocrats being in power too long now exists" and highlighted China's zombie companies, pointing out that "China is producing steel, aluminum with subsidized finance" which of course is just another form of protectionism.

In a surprisingly accurate take for a government official, Malpass cautioned that "with low bond yields and the availability of capital in both the public and private sphere there is a quiet but very broad leveraging up that we have to recognize as a vulnerability."

This is precisely what the IMF warned about last December in "The Walking Debt: Resolving China’s Zombies."


As Bloomberg adds, the first Comprehensive Economic Dialogue during the Trump administration fell apart in July 2017. The two super-powers were unable to produce a joint statement after Commerce Secretary Wilbur Ross scolded China over its trade imbalance with the U.S. in his opening remarks. Both sides canceled a planned closing news conference.

“After 10 years of discussions, certainly the U.S. has grown frustrated with the lack of progress” that resulted from the Comprehensive Economic Dialogue, said Timothy Adams, president of the Washington-based Institute of International Finance and a former Treasury undersecretary in the George W. Bush administration.

“I don’t fault them for their frustration, they’re looking for different ways of bringing about change of Chinese behavior,” he said in an interview earlier this month.

Anticipating the collapse of formal relations, President Xi Jinping recently sent his top economic adviser, Liu He, to meet with Mnuchin. In that meeting, Liu is said to have asked Mnuchin for a point-person to provide a list of specific demands from China, a sign that Treasury’s shuttering of the formal dialogue process may be hampering the process. Liu pointed out that different U.S. administrations have wanted various things, the person said, with Bush focused on monetary policy and Obama emphasizing investment.

Meanwhile, in the latest indication of bilateral relations, Malpass said the U.S. wants to work with other nations to come up with a united response to what America sees as China’s foot dragging on economic changes, ranging from reforming state-owned enterprises to curbing the ruling party’s role in the economy.

“Above all, their markets are not reciprocal in the sense that there’s not an ability for other countries to work in China the way that China works in elsewhere,” Malpass said later Sunday in a Bloomberg TV interview.

As Bloomberg further notes, the new rhetoric contrasts with the more collaborative approach of both the George W. Bush and Obama administrations, who courted China as an economic partner even as the U.S. asserted its military power in Asia. However, in light of Trump's recent trade war rhetoric, the shift is hardly a surprise.

As discussed last week, as part of the next round of targeted trade wars, Trump is considering clamping down on Chinese investments in the U.S. and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property. A number between $30 and $60 billion (and perhaps even higher) in tariffs on Chinese imports has been floated.

Also last week we laid out a Goldman report analyzing  which Chinese imports are most likely to be hit by the upcoming round of China-focused tariffs.

All this takes place ahead of the year's first G-20 meeting of central bankers and finance ministers in Buenos Aires. Talks start Monday and conclude with the release of a statement on Tuesday. They convene at a time when the global economy is in surprisingly strong health, yet concerns are growing that its upswing may boil over, and predictably, the topic of the moment is President Trump’s trade war plans, and as a result many governments are lobbying to be exempted. That could make for an uncomfortable couple of days for U.S. Treasury Secretary Steven Mnuchin as he tries to play down trade frictions. Scandal-plagued Japanese Finance Minister Taro Aso will not be attending.

According to Bloomberg, one of Mnuchin’s primary aims at the G-20 this week is to gain greater visibility into loans China has made to developing countries. The Trump administration is concerned that the U.S.’s top strategic rival is attempting to extend its influence with the loans while moving away from opening its markets to American goods.

"On the positive side, the world is recognizing that and beginning to work together. Recognizing that having such a big economy in the world move away from markets has not been good for us, for the world,” Malpass concluded ominously.

Comments

Roger Ramjet Sun, 03/18/2018 - 12:30 Permalink

Yes, "formal dialogue" is a dangerous thing and we must end that immediately!  Who would have ever proposed such an insane idea of having discussions with your global trade partners or competitors.

Slomotrainwreck Pandelis Sun, 03/18/2018 - 20:29 Permalink

If the United States of America had no US Government, would Texas, for instance, ban goods from China? The answer is No.

If they did, would China want to have a war with Texas? ummm... no again.

So who would print the money then? Good question. extra credit for the right answer.

Anyhow, my point is that this sht wouldn't be happening if the Libertarians were in power.

In reply to by Pandelis

JibjeResearch ne-tiger Sun, 03/18/2018 - 14:07 Permalink

Exactly Tiger!  They will use the BRI to bring Gold-PetroYuan; thus, sending the Yuan out and bringing in resources for consumption and export-- those Yuan will come back into bonds-- just like the PetroDollar-Bond with the Saudi.

They got it done!  We failed to plan since 2011, most likely plan to fail moving forward.

In reply to by ne-tiger

tion lester1 Sun, 03/18/2018 - 13:42 Permalink

Tyler is awake, I love all these trade articles. 

Expecting a circle jerk may leave you feeling.. dissatisfied? 

 

Trade deficit closed by 2020?! How to meme that into being... is the question.

Mr. President, give us a competition! Let’s make a game of it ^^

(paging Mississippi guy, my state can kick your state’s ass, but let’s make a go of it, I will even root for you ;)

In reply to by lester1

GUS100CORRINA Sun, 03/18/2018 - 12:30 Permalink

US Ends Formal Economic Talks With China Ahead Of Trade Wars

My response: This is NOT A TRADE WAR!! America is establishing new rules for FAIR and RECIPROCAL trade. That is all there is to it.

Endgame Napoleon Itdoesntmatter Sun, 03/18/2018 - 13:20 Permalink
  • Fair to American business owners, like say a manufacturer who takes out commercial loans that he must pay back, as opposed to his Chinese competitor, with startup and operating capital backed by a government-owned bank;
  • Fair to his many non-welfare-eligible, non-child-tax-credit-boosted, American employees—struggling to survive on wages that never rise perceptibly, with rent that consumes more than half of their monthly earned-only income—as they try to compete with laborers making between $1 and $3 per hour in China;
  • Fair to shareholders who have made bank off of the reduction in labor expenses by offshoring over 2 million factory jobs to Asia, in that Chinese copyright infringements cut into the profits of American-owned companies that are competing against a boatload Chinese-owned companies, which often sell copies of American-designed products;
  • Fair to American taxpayers since more exports means more jobs and more taxpaying citizens to beef up falling tax revenue, which will be addressed by a hike in taxes otherwise, not to mention the loss in budgetary solvency from offshoring over 2 million jobs, i.e. 1) in income tax contributions from American workers and 2) in potential Social Security contributions, as the US attempts to finance the massive Baby Boom retirement.

In reply to by Itdoesntmatter

snblitz Itdoesntmatter Sun, 03/18/2018 - 14:25 Permalink

Only Americans are foolish enough to think of trade in terms of "fair".  Everyone else thinks in terms of "advantage".

While American politicians use the term "fair" what they actually do is sell us out to foreign interests.

It is pretty easy to demonstrate that world trade policies towards the US are not "fair" using the American meaning of "fair".  Are those other countries going to voluntarily change their policies to be "fair"?   Of course not.  They are going to take and take and take as long as the American goose is around to be plucked.

The only way the trade policies will change is if they are changed on the US side. 

Is the following "fair"?

  • Auto Import Tariff: US 2.5% vs EU 10%
  • Auto Import Tariff: US 2.5% vs China 18%+

Is changing this to

  • Auto Import Tariff: US 10% vs EU 10%
  • Auto Import Tariff: US 18%+ vs China 18%+

unfair?  Is it a "trade war?"

Is the US being a belligerent when it asks the world to stop the unfair trade practices?

Unless you implement reciprocal or balanced trade policies your industry will disappear.

https://www.finitespaces.com/2018/02/15/taxes-and-trade-wars/

and this describes exactly how

https://www.finitespaces.com/2018/03/05/how-tariffs-really-work-in-the-most-simple-terms-possible/

In reply to by Itdoesntmatter

el-greco GUS100CORRINA Sun, 03/18/2018 - 12:47 Permalink

Fair and reciprocal trading has to include a change in the ownership of the world's reserve currency; that unfair advantage the US enjoys and regularly employs to tip the scales in its favour. So China is absolutely within its rights to tip the scales in its own favour until US officials agree that all variables are to be taken into account.

In reply to by GUS100CORRINA

snblitz el-greco Sun, 03/18/2018 - 15:02 Permalink

Yes! you have it exactly right.  Sovereign states and citizens/subjects have the right to act in their best interests! (well at least I wish they did)

Everywhere in the world, states act to create trade advantages for their people.

There is nothing wrong with this as the state on the other side of the trade can reciprocate.

The US has not reciprocated for decades.

Only Americas think in terms of "fair" trade.  Other countries and their people link in terms of trade "advantages".

If Americans are foolish enough to let themselves be ripped of, then they will be ripped off.

Americans have voted to be ripped off by their politicians and foreign interests for decades. (as judged by the results, rather than intentions)

Like the Chinese, Americans have every right to choose not be ripped off.

 

In reply to by el-greco

tion crossroaddemon Sun, 03/18/2018 - 13:31 Permalink

You really want to continue being the beneficiary of the debt money eh?

USD global hegemony is dying. Period. You think we can do nothing and escape consequences? You’d rather the US return to slaughtering humans in distant parts of the world in order to maintain your cheap imported shit paradise? Don’t worry, the banksters are on your side. Y’all can keep eachother company.

In reply to by crossroaddemon

BritBob Sun, 03/18/2018 - 12:31 Permalink

Xi is his own man but sometimes he's away with the fairies...

China – Argentina – the Falklands

In tune with President Macri's words, Xi Jinping thanked Argentina "the support they have given us for our claim of a single China as we support theirs for the Falkland Islands."  (Telam 17 May 2017).

Falklands - Argentina's Imaginary Territory (1 pg):- https://www.academia.edu/35715281/Falklands_Argentinas_Imaginary_Territory

Oops!

Albertarocks Sun, 03/18/2018 - 12:37 Permalink

This is not going to go well.  China has 90% of all rare earth elements, materials that are in huge demand, especially in military applications.  That fact will surely come into play.

hibou-Owl Sun, 03/18/2018 - 12:38 Permalink

What stops one of the exempted countries buying chinese steel, and rebranding it.

It's going to be real cheap to buy.

It's happening with oil why not steel.

We had a tariff buster on cream to Japan, add a bit of culture freeze it fast and technically it's cheese. Just ask the Chinese to make a unique product and you sell it.

Endgame Napoleon hibou-Owl Sun, 03/18/2018 - 13:50 Permalink

Isn’t that akin to what American furniture companies do with the Chinese-made particleboard by adding stain to that simulated-wood product, then assembling the rest of the Made-in China components to make a whole furniture suite, with a 5-year maximum longevity rate, that costs less than one piece of Made-in-America hardwood furniture, passed down from one individual to another over decades—over centuries in some cases?

I guess not since you are talking about a chemical process of some kind that morphs one dairy product into another, whereas I am talking about a surface alteration.

In reply to by hibou-Owl

Econogeek Sun, 03/18/2018 - 12:46 Permalink

Why is it a 'trade war' when the US talks about raising some tariffs, while it's 'fair trade' when other countries maintain very high tariffs and NTBs (non-tariff barriers) to our exports and we are silent?

What is it about double standards in trade practices that reporters don't understand?  What's with all this absurd 'trade war' talk? 

If we take a few steps toward equalizing border treatment for traded goods and services -- just equalizing treatment -- Trump is 'protectionist' and the US is starting trade wars.   Bizarre.

I say it's about time.  Thank you President Trump.

crossroaddemon Econogeek Sun, 03/18/2018 - 13:00 Permalink

Except it's never going to be equivalent. The US is completely incapable of being globally competitive in manufacturing unless and until the cost of living in this country decreases drastically. Guess what: the shit is still going to be manufactured overseas; we're just going to pay more. Unless you can show me a plan to push wages up, any policy decisions that raise prices are beyond stupid.

Besides, who wants manufacturing jobs to come back? Anybody who wants or needs a factory job has made bad life choices... nobody does those jobs if they have a decent option. I'm rooting for automation because it might free large numbers of people from wage slavery. An economy and infrastructure that is 100% dependent on hundreds of millions of jobs nobody would do if they had a choice is flat-out a terrible system.

In reply to by Econogeek