China: Movement on Tariffs, Biden-Xi Summit

Published on September 3, 2021
SGH Insight
Our understanding is that John Kerry, after he arrived in Tianjin on August 31, then set up a virtual meeting with Wang. But the topic of Kerry’s conversation with Wang was not climate, but bilateral relations.

According to Chinese sources, Kerry also asked Wang to convey to Xi that Biden hopes and looks forward to holding bilateral talks with Xi in Rome.
But before the two leaders can meet, the two sides need to show some consensus on major issues.


Market Validation
Policy Validation

Bloomberg 9/10/21

The U.S. official criticized China’s linking of
transnational and bilateral matters, essentially holding hostage
any progress on areas like climate change while demanding
unrelated concessions in return.
That was clear when Biden’s climate envoy John Kerry held
talks with Chinese Foreign Minister Wang Yi last week. “China-
U.S. climate change cooperation cannot be separated from the
general environment of relations,” Wang said, according to the
ministry. “The United States should meet China halfway and take
positive actions to push relations back on track.”

China and the US have not yet held any formal or vice-ministerial level consultations on the elimination of tariffs, but our understanding is that the two sides have begun informal consultations at the “director-general” equivalent level already.

Indeed, senior officials in Beijing indicate to us that “if the Biden administration continues to show its willingness to improve bilateral relations,” China’s chief negotiator with the US on economic matters, Vice-Premier Liu He, would be open to a phone conversation with US Treasury Secretary Janet Yellen or US Trade Representative Katherine Tai on bilateral economic and trade issues in late September or early October.

For her part, both as Federal Reserve Chair and as a private citizen, Treasury Secretary Janet Yellen has been clear that from a strictly economic cost-benefit perspective, the tariff regimes put in place by the administration of then-President Donald Trump in her view do not best serve the US interests.

And sensing a window of opportunity, Chinese officials and US corporate business lobbies are pointing now to mounting inflationary pressures and supply chain concerns as further reasons for a reset on US-China trade policy — in addition, of course, to their own self-interests.

But of course removing tariffs is not solely an economic calculus, but a delicate strategic and political decision to be coordinated between the Treasury, White House, and US State, Security, and Defense apparatus.

And here, the all-important political sands in Washington appear to be shifting as well, setting up for a bilateral meeting between President Joseph Biden and President Xi Jinping on the sidelines of the G20 summit on October 30-31 in Rome.

A Multi-Front Effort

Our understanding is that the informal, mid-level exploratory discussions on trade have been part of a broader flurry of communications that have been going on between Washington and Beijing over the last two weeks.

Chinese officials note that these communications accelerated significantly after the collapse of Afghanistan, and Beijing believes, and clearly hopes, it is evidence that after his “Kabul moment,” Biden’s China policy has been quietly and cautiously shifting from confrontation to finding areas of cooperation.

Since the Taliban entered Kabul and took control of Afghanistan’s presidential palace on August 16, they note that US Secretary of State Antony Blinken called State Councilor and Foreign Minister Wang Yi twice to seek help from China on Afghanistan.

Then John Kerry, Biden’s Special Presidential Envoy for Climate, embarked on his second trip to Tianjin in five months, and Major General Huang Xueping, Deputy Director for the International Military Cooperation Office of the Central Military Commission of the PLA, held a phone conversation with the US Deputy Assistant Secretary of Defense for China, Michael Chase.

But perhaps most interesting to markets, the US Department of Commerce has also taken the important step of holding telephone consultations, at the director-general level, with China’s Ministry of Commerce – twice in the past-half month.

Pivoting off Afghanistan

Beijing believes Secretary Blinken called Wang on August 29 with two main objectives.

First, he hoped China would put pressure on the Taliban to further help ensure the safe withdrawal of US troops from Afghanistan, and that China would support a resolution on Afghanistan drafted by the US at the UN Security Council.

Second, Blinken hoped to hold the Xi-Biden summit on the sidelines of the October 30-31 G20 summit in Rome, and he expressed his willingness to visit China to make arrangements for the summit.

Our understanding is that John Kerry, after he arrived in Tianjin on August 31, then set up a virtual meeting with Wang. But the topic of Kerry’s conversation with Wang was not climate, but bilateral relations.

According to Chinese sources, Kerry also asked Wang to convey to Xi that Biden hopes and looks forward to holding bilateral talks with Xi in Rome.

But before the two leaders can meet, the two sides need to show some consensus on major issues.

Here, officials in Beijing note how they helped the US in Afghanistan, taking credit for communicating with the Taliban and renewing their commitment to ensure that all foreigners, including American soldiers, leave Afghanistan safely.

Furthermore, they note how China, together with Russia, just abstained, rather than voted against, “Biden’s resolution” on Afghanistan at the UN Security Council.

That the resolution, which was actually sponsored by France, the UK, and US, was largely toothless, among other things stating that the international community was “expecting the Taliban to adhere to its commitments,” and a de facto recognition of the Taliban regime, is irrelevant to Beijing’s intended signal on cooperation.

 

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