US stocks today gave up a modest advance and fell into negative territory after Bloomberg News reported that the US would impose tariffs on all Chinese imports if talks between Presidents Trump and Xi Jinping failed to resolve the trade war. “The list would apply to the imports from the Asian nation that aren’t already covered by previous rounds of tariffs – which may be $257 billion using last year’s import figures,” the news service wrote.
The stock market’s reflex reaction to trade war news ignored the information content of the report: There will be negotiations between Xi Jinping and Donald Trump over Sino-American trade at the Group of 20 meeting in Buenos Aires, to be held from November 30 to December 1.
There has been speculation about a meeting, but the American side had told media that the trade issue might not even be on the two presidents’ agenda. If Trump and Xi Jinping expect to make progress on trade, preliminary discussions must already be underway among senior officials.
I reported from Beijing last week that China is seeking a framework for a trade deal with Trump, including at least rhetorical concessions about the goals of its industrial policy, a source of American contention.
“China’s state-sponsored push to dominate technologies of the future is one of the biggest stumbling blocks to prospects for resolution to the US trade war,” Bloomberg News wrote yesterday, adding, “Officials from both sides are pessimistic about chances for a breakthrough when Donald Trump and Xi Jinping meet on the sidelines of the [G-20 summit].” That is the sort of fake news that President Trump bemoans, but in this case it appears to emanate from the US Administration.
Chinese analysts told me earlier this month that Beijing might be willing to abandon his rhetoric about dominating some high-tech industries by 2025 without, however, materially changing its economic plans. The 2025 goal had less to do with the practicalities of industrial policy than with the government’s domestic public relations.
Another indication that the US and China are negotiating in earnest is a report by Reuters that China will take an important step towards complying with US sanctions against Iran. The news service wrote: “Bank of Kunlun Co, the key Chinese conduit for transactions with Iran, is set to halt handling payments from the Islamic Republic under pressure of imminent US sanctions against the country, four sources familiar with the matter told Reuters.” The new US sanctions take effect November 1.
Reuters added, “China is the top buyer of Iranian oil and nearly all of its oil payments go through Kunlun. China had been buying some $1.5 billion worth of oil each month from Iran as recently as September. But state refiners have since October been scaling back oil purchases from Iran to comply with looming US sanctions, oil industry sources have said. The previously unreported moves by Kunlun highlight the mounting pressure Beijing faces as Washington reimposes sanctions targeting Iran’s financial and oil sectors from early November.”
An adviser to China’s State Council told me earlier this month that the Chinese government might consider making a gesture to the United States about Iran in pursuit of a trade settlement with the United States. Officially, China has opposed America’s unilateral withdrawal from the Iran nuclear deal. It isn’t clear why China decided to suspend its normal channel of payments for trade with Iran. Writing in the website Axios today, Jarrett Blanc of the Carnegie Endowment for International Peace offered two possible explanations.
“China may simply be further insulating its biggest firms from Iran-related sanctions by removing them from this trading relationship,” Blanc wrote, “leaving smaller Chinese refiners and banks to step into the gaps left by Kunlun, Sinopec and CNPC. This would put some effective limits on Iranian oil sales and other trade without totally shutting it down.”
But the Chinese move also might represent “a diplomatic concession,” according to the Carnegie Endowment researcher. “If China is preparing to comply with re-imposed US sanctions, it might be as a sweetener to secure a Trump-Xi meeting at the November G20 to make progress on the trade war, which is vastly more important to both countries than Iran sanctions.”
President Trump’s “Art of the Deal” approach to negotiations maximizes hostile rhetoric going in but seeks to reach an agreement going out. It is far from clear how US-China discussions will play out, but from the hints that American and Chinese officials have dropped recently, a negotiation is underway rather than an all-out confrontation.