China Resists Trump Deficit Demand, Agrees To Buy More US Goods

  • Written by Zero Hedge
  • Published in Economics

After much anticipation that following Trump's ZTE gamble, China may relent in the ongoing trade war - stoked in no small part by Larry Kudlow's false statement that Beijing had offered to reduce the US trade deficit by "at least $200 billion" - on Friday the U.S. and China wrapped up the second day of trade talks, and while Beijing made a vague, unenforceable commitment to buy more U.S. goods and services, it resisted Trump's core demand that it cut by more than half the $375BN bilateral trade deficit.

According to the WSJ, while the Chinese were wary of committing to specific purchases - even though Kudlow also said China would buy more farm products, energy and financial services - they continue to look for a way to ease trade tensions between the two nations even if it means with token promises and gestures.

That said, there was one tangible achievement: late on Thursday, Beijing ended an antidumping probe into imported U.S. sorghum - used for feeding livestock and brewing alcohol - which had shut down U.S. sales to China. As a reminder, a month ago, on April 17, China slapped a 179% tariff on US sorghum just hours after the US banned exports to China's telecom giant, ZTE. China’s Commerce Ministry said earlier that punitive measures on purchases of the crop would “affect the cost of living for consumers” in China. On Friday, China’s Commerce Ministry said it would return the deposits in full while announcing the end to the probe, essentially removing the penalties on U.S. sorghum producers.

The decision however has wider implications: it is a direct tit-for-tat in the ongoing discussion over the fate of ZTE sanctions, and as the WSJ wrote previously, the two sides have been negotiating a deal for the U.S. to ease sanctions on China's blacklisted company. In exchange, China would end recent restrictions and tariffs on U.S. agricultural products.

Currently the Commerce Department forbids U.S. companies from supplying parts to ZTE. Mr. Kudlow said that the U.S. was considering easing the punishments. Alternative sanctions could include changing senior management and board members, Mr. Kudlow told Fox Business Network. Such changes “would be very harsh,” he said.

As such, all that was achieved this week was for China to overturn a policy it implemented a month ago in response to an enforcement action that Trump similarly enacted in mid-April.

At the same time, one of Washington’s central demands - that China reduce its merchandise trade surplus with the U.S. of $375 billion by at least $200 billion by the end of 2020 - remains unaddressed, even though economists in both nations say that the trade deficit is affected by investment and savings patterns in both nations, not trade policy, and as such it isn't feasible to be changed with the stroke of a pen absent dire economic consequences. Beijing has rejected U.S....

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