US and Chinese trade negotiators are soon expected to meet face-to-face for the first time since their leaders declared a temporary truce in late June.
But a quick end to the trade war isn’t a sure bet. After all, the last month hasn’t been easy on the relationship between Washington and Beijing.
On Monday, Huawei — a company that President Donald Trump has suggested could be a bargaining trip in trade negotiations — was the subject of a report that claimed it may have violated US sanctions on North Korea. The next day, the Chinese tech firm announced it would lay off US staff, a decision it blamed on American restrictions on its business.
Complicating matters even more, the United States slapped sanctions on a Chinese company this week for violating a ban on buying Iranian oil. After that announcement, China didn’t mince words: The country slammed what it called Washington’s “bullying” behavior.
Even so, trade talks between the two countries seem poised to step up a gear. US trade negotiators are expected to travel to China next week to resume working-level talks on a trade agreement, a person familiar with the plans told CNN. Officials have been talking by telephone since Trump and President Xi Jinping agreed to a ceasefire at the G20 summit in Tokyo.
“The Chinese have been a lot more cautious now than back in May, when the trade talks broke down, because they’ve experienced enough flip flops during the trade talks,” said Tommy Wu, senior economist at Oxford Economics. “That’s keeping the two sides more distant than last time around.”
The role Huawei plays in any trade deal is a big question. The world’s largest telecommunications equipment maker and leading smartphone brand has been on a US trade blacklist since May.
Trump said on the sidelines of the G20 last month that he would ease some restrictions on the company — a concession to Beijing, and potentially relief for some of its suppliers such as Google (GOOGL), Intel (INTC) and Qualcomm (QCOM).
But the Washington Post’s report this week about the company’s ties with North Korea could give ammunition to US officials who consider Huawei a threat to national security.
The newspaper said Huawei secretly helped build North Korea’s cell phone network, potentially in violation of sanctions aimed at pressuring the regime to stop developing nuclear weapons. Huawei told CNN Business that it has “no business presence” in North Korea, and the company has denied that any of its products pose a national security risk. A spokeswoman declined further comment.
US Commerce Secretary Wilbur Ross told Bloomberg this week that he could not comment on a “pending investigation.” But he did say “we are continuing to watch very carefully everything about Huawei, including the information revealed in that article.”
Ross added in that interview that the Trump administration will review applications that would allow US companies to resume business with Huawei, with some decisions to come “within the next few weeks.”
Because many US companies are pushing to restore ties, “it won’t be seen as a defeat for Trump if he delivers easing on Huawei,” said Edward Moya, senior market analyst at OANDA.
But Trump could face a backlash within his own administration.
“There are hawks within the administration, based on national security reasons, they at least want to keep Huawei” on the trade blacklist, Wu said.
Economic considerations remain a major factor, too. While both sides are politically motivated to secure an agreement, “someone has to look like a loser in this deal,” said Moya.
“A lot of chips are on the US side in terms of where the economy is,” he added.
America’s economy is in a period of historic prosperity. The unemployment rate is near 49-year lows, the stock market has never been higher and consumers are spending.
In China, meanwhile, economic growth has slumped to its lowest level in nearly three decades. The country is struggling to rein in high levels of debt and consumers are spending less freely than they were a year ago.
While there is no expectation that the next round of talks will yield a comprehensive deal, the two sides could make headway in some areas. State-run media on Sunday reported that Chinese companies were asking US exporters about buying soybeans, cotton, pork and sorghum, and had applied for the lifting of tariffs on those products. Asked by reporters Tuesday about trade progress with China, Larry Kudlow, Trump’s National Economic Council director, said the administration hopes “strongly” that China “will very soon start buying agriculture products.” “Going over there is a really good sign,” he added.
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