US makes move on trade war talks as pressure mounts ahead of midterm elections

Washington’s offer to restart negotiations comes as both sides are feeling the strain, and with Beijing in a weaker negotiating position

PUBLISHED : Thursday, 13 September, 2018, 11:01pm
UPDATED : Friday, 14 September, 2018, 5:45am

Washington has offered to restart negotiations with Beijing as the trade war escalates, a move analysts say reflects pressure on the White House ahead of critical midterm elections and a weaker Chinese negotiating position as its economy slows.

China’s foreign ministry on Thursday said it welcomed the invitation from the US side, led by Treasury Secretary Steven Mnuchin, for renewed dialogue on trade after low-level talks in Washington last month fizzled without results.

While no concrete details were revealed by either side, potential new talks would be aimed at staving off the next round of US$200 billion in punitive duties from the US expected this month – the largest tariff measure in the intensifying trade war so far – and US$60 billion in retaliatory tariffs from China. US President Donald Trump has warned he is willing to slap tariffs on all Chinese imports, worth US$500 billion, saying on Tuesday that his administration has “taken a very tough stand on China, I would say, to put it mildly”.

But analysts say the newest series of tariffs would be a particularly deep cut for both economies, and would likely come ahead of November midterm elections, with recent polls showing that the Republican Party may have trouble keeping its majority in the House of Representatives. The latest data from polling aggregator RealClearPolitics puts Democrats at a more than 8-point lead in a generic congressional vote for the House.

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Christopher McNally, an adjunct senior fellow at the East-West Centre in Hawaii, said the Trump administration may seek a deal on the trade war before the elections, though he cautioned that the president could easily throw out any negotiated settlement if he felt it did not “help him politically or doesn’t go far enough, doesn’t make him look good enough”.

“The administration is faced with the fact that if they go ahead with the US$200 billion, they will hurt the US economy quite badly, and things are not going so well with the midterms,” McNally said. “If you have a big decline in the stock market just before the election, it could swing it in the way of the Democrats.”

Orit Frenkel, a former US trade official and president of the consulting firm Frenkel Strategies, also said Trump may feel pressure to reach agreements to avoid continuing the trade war with the midterms fast approaching, but that he would want to see significant concessions from China before backing down.

“I think the talks have the potential to be successful, but it depends on the approach that both countries take,” she said.

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The possibility of new talks comes as China is wary of the “very painful” impact of additional US tariffs given its economic slowdown, with its gross domestic product at the lower end of its growth range for the past three years. But it is unlikely Beijing would be willing to concede on its fundamental industrial policies, such as the controversial “Made in China 2025” plan to leapfrog from a manufacturing power to a hi-tech innovator.

“China does look to be in a relatively weaker position,” McNally said. “There is some economic pain being felt and the US$200 billion would be increasingly painful, which would move them somewhat towards the [Trump] administration.”

Yu Zhi, an international trade specialist at the Shanghai University of Finance and Economics, urged Beijing to resolve Washington’s fundamental and long-standing problems with its trade practices in any negotiations that take place to avoid expanding the trade war even more. He warned that further escalation would severely damage Chinese industries, China’s markets and currency, and its position in the global supply chain.

“If China does not make concessions now, it will be bad,” he said. “This is a critical point: China cannot look at this as a game where the US is just trying to hurt China. Some people in China expect that after the midterm elections, Trump will concede, but this Chinese wishful thinking will definitely not be true.”

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But given the high stakes for both sides, with Trump pushing for concessions from China but Beijing unlikely to give ground on key policy requests, the trade conflict could continue to escalate into what scholars have already begun to term a new cold war.

“This is a see-sawing conflict,” said Ma Xiangjun, an international trade expert at the University of International Business and Economics in Beijing. “Even as both sides try to engage in negotiations as much as possible, the trade war remains a long-term battle.”