China: A Highly Delicate Inflection Point

Published on May 6, 2019

President Donald Trump’s tweets over the weekend threatening to hike tariffs on China if there is no deal by this Friday sent global markets in a tailspin, with all eyes turned now to President Xi Jinping for China’s response. 

News reports out of Beijing confirm that China is still prepared to send a delegation to the US this week, but they are unclear as to whether the lead negotiator, Vice Premier Liu He, will join the team after Trump’s aggressive tweet storm.

*** Liu is not yet prepared to cancel his trip to Washington this week, from what we understand, but his visit will come with deep reservations, and with concerns over a possible failure of negotiations. ***

*** Ultimately, sources in Beijing say whether a trade agreement can be reached depends entirely on Trump. If he wants it, they say, China will sign; if not, both will dig in for a protracted trade war. ***

Beijing Downplaying Expectations for a Deal

According to senior Chinese sources, if Liu did not go it would signal a readiness by both China and the US to escalate the current partial trade war into an all-out trade war, whereas going does not mean China is necessarily backing down, or “surrendering” to the US. 

And since the Sunday tweets, Beijing has been told that the US negotiating team has not changed its position, and welcomes the Chinese negotiating team — led by Liu He — to Washington for the next round of negotiations. 

But Beijing, whether as political posturing or not, is quietly downplaying its expectations for a deal, indicating their expectations are “not as high as those of the US side.” In the bigger picture, there is full awareness that even if an agreement is reached this week, as originally planned, it would not signal an end to the China-US trade conflict.

And if the talks were to fail and Trump, as threatened, to proceed with imposing 25% tariffs on the current 10% levies on $200 billion of Chinese imports to the US, we are told Beijing will retaliate by imposing a 25% tariffs on the current 10% levies in place on $60 billion of goods it imports from the US.

White House Anger over North Korean Missile

From the US side, our understanding is that Trump’s tweets were not solely triggered by any reported backtracking by China on negotiations, or a simple “Art of the Deal” type posturing in this, the final stage of negotiations.

Indeed, as of late Friday, the post-mortem from sources after the latest round of negotiations between Vice Premier Liu He, US Trade Representative Robert Lighthizer, and Treasury Secretary Steve Mnuchin was that both sides were eager to conclude negotiations at the upcoming talks this week in Washington.

Our understanding, rather, is that President Trump was furious at Beijing over the North Korea rocket launch on Friday night, and on the eve of a trade deal with China, notwithstanding every effort possible made over the weekend in Washington to downplay the rocket launch, including by Trump himself. 

Indeed, to add insult to injury, lest the message was not clear, North Korea state media pictures indicate that the “artillery” launch was, in fact, a short-range ballistic missile.

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