Overnight, experts and pundits were stumped by the biggest geopolitical news from Thursday: how could China possibly - or feasibly - agree to a $200 billion cut in the US-China trade deficit, even if merely to placate President Trump. Speaking to Bloomberg, Victor Shih, a China politics and finance professor at the University of California in San Diego said earlier that he finds an agreement to cut the U.S. deficit by $200 billion "difficult to contemplate."
"Even with a drastic reallocation of Chinese imports of energy, raw materials and airplanes in favor of the U.S., the bilateral trade deficit may reduce by $100 billion," he said. "A $200 billion reduction would mean a drastic reduction in Chinese exports to the U.S. and a dramatic restructuring of the supply chain."
On Friday morning we got the answer: the entire story was nothing more than the latest fake news concocted by a "US official" and then promptly spun by the US media without actual confirmation by China.
And so, the mystery of just how China would shrink its $200 billion trade deficit with the US died on Friday morning, when China gave the answer: it wouldn't, after Beijing denied it had offered the deficit-cutting package, just hours after it dropped an anti-dumping probe into U.S. sorghum imports in a conciliatory gesture as top officials meet in Washington.
“This rumor is not true. This I can confirm to you,” Chinese foreign ministry spokesman Lu Kang politely told a news briefing saying "the question is about some US officials who said China will cut the deficit. As I understand, the relevant consultations are ongoing and they are constructive,” he said, adding that he could not elaborate on the specifics of the negotiations.
Commentary posted in an article on WeChat accounts run by Xinhua News Agency and People’s Daily overseas edition was less restrained, and said that the offer to cut China's trade surplus with the U.S. is "nonexistent" and that reports that China accepted the U.S. demand to narrow the trade gap are “purely a misreading."
The article said that China will "never negotiate under the conditions set by the U.S." and added that "two sides made progress in areas such as the U.S. allowing more exports of technology products including semiconductors, as well as lifting restrictions on energy exports" but stressed that "China won’t make unilateral concessions."
The article also underscored that just hours before President Donald Trump met Vice Premier Liu He, the two sides were at loggerheads on key issues, and concluded that negotiations are ongoing and called on China to "fight for the best, and prepare for the worst.” It added that “tomorrow is a crucial day” without elaborating.
As a reminder, a $200 billion reduction in the 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. That mission left with little common ground with China and reports emerging of infighting among the U.S. officials. The U.S. merchandise trade deficit with China hit a record $375 billion last year. The Trump administration has threatened to impose tariffs on as much as $150 billion of Chinese imports to the U.S. as tensions over trade have escalated. Trump expressed doubt before his meeting with Liu that China and the U.S. would come to an agreement to avoid a damaging trade war.
“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.”
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What wasn't fake news, is that earlier on Friday, China did offer a conciliatory olive branch when it announced that it would end its sorghum anti-dumping and anti-subsidy investigation, which had effectively halted a trade worth over $1 billion last year. The United States shipped 4.76 million tonnes of sorghum to China in 2017, worth about $1.1 billion, accounting for the bulk of Chinese imports of the grain used in animal feed and Chinese liquor.
"The imposition of anti-dumping and anti-subsidy measures on imports of sorghum originating from the United States would have a widespread impact on consumer living costs, and does not accord with the public interest," the Commerce Ministry said in a statement.
In April, China forced U.S. sorghum exporters to put up a 178.6% deposit on the value of sorghum shipments to the country after launching an investigation in February following Trump’s imposition of steep tariffs on imports of solar panels and washing machines.
“China has taught a lesson to the United States and showed how it can hurt U.S. exports,” said Ole Houe, director of advisory services at brokerage IKON Commodities in Sydney.
“Now they are showing goodwill by halting its anti-dumping investigation into sorghum imports, but it is a cheap way of showing goodwill as the U.S. doesn’t have much sorghum left to export. The next U.S. sorghum crop will be harvested in August,” Houe said.