China Confirms 'Clear Timeline and Road Map' for Trade Talks with U.S.

Posted on 12/05/2018 7:20 AM

Markets wary of Trump, other officials' comments on trade, will focus on Chinese remarks


Bluster-type remarks from President Trump and some of his officials regarding trade with China are increasingly being dismissed. Traders instead say they will take their cues from statements made by Chinese officials. Meanwhile, White House officials said they planned to take a tough stand in their 90-day trade negotiations with China or impose further tariffs. Importantly, Chinese officials finally said the talks have a “clear timeline and road map.”
     "We are either going to have a REAL DEAL with China, or no deal at all," President Trump tweeted. "Ultimately, I believe, we will be making a deal — either now or into the future... China does not want Tariffs!"
     Bloomberg notes that China is preparing to import U.S. soybeans and liquefied natural gas (link). Reuters reports that the Chinese oil trader Unipec plans to resume U.S. crude shipments to China in March. And China announced new punishments for intellectual property theft.
     Trump may have overstated China’s concessions. Michael Pillsbury, the former Pentagon official Trump has called “probably the leading authority on China,” told Axios that there was concern in China about American reports of concessions that Beijing never agreed to. They include the Chinese “immediately” addressing intellectual property theft, resuming purchases of American agricultural products and cutting car tariffs.
     About those U.S. metal tariffs on Canada and Mexico. U.S. Trade Representative Robert Lighthizer has confirmed that talks with Mexico and Canada about the tariffs were “not going to take a pause” and would continue this week in an effort to “come to a conclusion before long.” Lawmakers on both sides of the aisle have criticized the Trump administration's continued tariffs on the two U.S. allies, arguing the negative effects the duties and retaliatory tariffs have on U.S. manufacturers, farmers and agribusiness, and consumers and workers. Sen. Rob Portman (R-Ohio) said last week he was "disappointed" to see the tariffs still in place as the three countries were signing the new agreement. Sen. Pat Toomey (R-Pa.) has also raised concern about the administration's "failure to eliminate" the tariffs when the deal was first reached.
     A state funeral for Bush, who died Friday at 94, will be held this morning at Washington National Cathedral. The last presidential funeral was in 2007 for Gerald Ford.

 

U.S. vows tough stance on Beijing. White House officials said they planned to take a tough stand in their 90-day trade negotiations with China or impose further tariffs. Importantly, Chinese officials finally said the talks have a “clear timeline and road map.”

China has now issued a statement on the results of the Argentine meeting between Trump and Chinese President Xi Jinping. "China will start from implementing specific issues on which consensus has been reached, and the sooner, the better," the Commerce Ministry said on its website. It noted there is a "clear timetable and road map" for talks, saying China would "actively promote the work of negotiations within 90 days in accordance with a clear timetable and road map." The ministry said it was "confident in implementation" and said the latest bilateral talks were "very successful."

Politico reports Commerce Secretary Wilbur Ross “said it was too early to tell if trade talks with China will be a success,” despite “very good assurances” Trump had received from Xi. Ross said the two presidents only discussed details at “the 40,000-foot level” and that it was up to negotiators from both sides to fill in the details. Ross told CNBC’s Squawk Box, “When presidents get together, you’re at a very, very high level, very broad principles of understanding. Now comes the hard part, which is translating that into a definitive agreement. Our hope is that in the 90 days we’ll pin down real ways to implement the broad principles that were discussed. ... But it’s too early to tell how serious they are.”

What “Tariff Man” Trump said that helped lead to a bust in Tuesday's stocks markets. President Donald Trump on Tuesday, in a series of Twitter posts, threatened to slap a range of import penalties on Chinese products if they did not make major changes in their economic relationship with the United States. “President Xi and I want this deal to happen, and it probably will,” Trump wrote. “But if not remember, I am a Tariff man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power.”

Meanwhile, Trump seemed to backtrack from his prior 90-day timeframe for a broader agreement with China. In his Twitter posts on Tuesday, Trump said they might need an extension if the 90-day timeline didn’t prove sufficient.

Steven Mnuchin, the Treasury secretary, said yesterday that the markets are in a “wait and see” period while investors try to determine whether an actual trade deal can be struck.

And topsy-turvy Larry Kudlow, National Economic Council director, was at it again. He acknowledged there wasn’t an actual agreement for China to remove auto tariffs, but that he expected China to eventually do it as a measure of good faith. He also said that China’s vice premier, Liu He, had told him there would be changes made “immediately” to show the Chinese were serious about a new agreement. But Kudlow acknowledged that so far they haven’t seen any evidence of concrete steps being taken. “I have no assurances” China will change, Kudlow said, speaking at an event hosted by the Wall Street Journal. He acknowledged that Chinese leaders have stopped short of following through on deals in the past, but he said he believed the involvement of Chinese leader Xi Jingping in the discussions Saturday would lead to a different outcome. “It looks to me that the ball is being moved in the right direction,” Kudlow said.

Kudlow also said the goal was to eliminate all tariffs on any imports, which is a departure from what Trump wrote Tuesday in a Twitter post, when he said he was a “tariff man.” Trump has not promised to lift all tariffs against Chinese goods.

What we do know: The Chinese have finally acknowledged a 90-day deadline, but they have not confirmed they plan to “immediately” increase purchases of U.S. farm goods.

Traders getting tired of what may be positive spin on U.S./China trade talks. "We expect to make a lot of progress" on trade negotiations within the first 90 days, Treasury Sec. Steven Mnuchin said Tuesday on Fox Business, while acknowledging U.S. and China won’t accomplish everything in that timeframe.

Mnuchin said agriculture will be first up in trade talks with China. "Our expectation is that there will be specific deliverables" and timelines from China, and "without reciprocal tariffs.”

Mnuchin confirmed that U.S. Trade Representative Bob Lighthizer will serve as the lead negotiator though President Trump will remain involved in negotiations and will receive weekly updates from his team. He said Trump has been focused on the "structural" issues such as forced transfers and IP protections.

Agriculture, LNG and the auto industry have been given commitments as part of the deal, Mnuchin said, adding there are 142 structural changes being discussed. “It will be the structural changes that lead to U.S. companies being able to compete fairly.”

China is already beginning to buy U.S. soybeans... “they are already beginning to buy as Brazil did not have enough,” said Peter Navarro, White House China adviser. But he then said, "You should see that soon."

China to import U.S. oil by March. Chinese oil trader Unipec, the trading arm of state-run oil refiner Sinopec, plans to resume U.S. crude oil shipments to China by March, according to a Reuters report, citing three sources with knowledge of the situation. "Chinese buyers who want to buy U.S. crude will rush to import the oil during this [90-day] window," a senior executive from Asia's largest refiner Sinopec said, adding that the oil has to arrive in China before March 1. "Oil prices are low, so it makes economic sense to store some crude as commercial inventories." It was unclear how much oil Unipec would buy from the U.S., but one of the sources said it could be a record volume in January.

USDA Sec. Perdue continuing to urge reducing reliance on China as major market. “While we’re all worried about China and its impact on our business, I say that we probably became too dependent on one customer,” Perdue said Monday at an Illinois Farm Bureau event in Chicago. This is likely why USDA announced seven upcoming trade missions in 2019 that Ted McKinney, undersecretary for trade and foreign agricultural affairs, will lead to developing markets like Colombia, Kenya, Vietnam, Canada, Mexico and the United Kingdom. USDA picked countries that “offer the best prospects for sales of U.S. farm and food products,” said McKinney, who led several trade delegations this year, including recent trips in South Africa and South Korea. China bought $19.6 billion in agricultural products in 2017, more than any country except Canada. Perdue said McKinney “is trying to develop a market that would benefit us for the long-term future not to be held hostage to one major customer, as we’ve been this year.”

Other items of note:

  • Update on second and final tranche of Trump tariff aid payments. USDA Sec. Perdue said he will meet with President Trump this week to discuss the next round of trade aid via the Market Facilitation Program, which USDA is expected to release by early next week.

  • China reports more cases of ASF. China’s ag ministry reported three new cases of African swine fever overnight, this time in the provinces of Sichuan and Shaanxi, and another case in the capital of Beijing.

  • Senate Ag panel to vote on nominees. The Senate Ag Committee will meet late this afternoon to vote on the nominations of Mindy Brashears to be undersecretary for food safety, Naomi Earp to be assistant secretary for civil rights and Scott Hutchins to be undersecretary for research, education and economics.

  • President Trump offered German automakers a reprieve from car tariffs, at least for now. Link to New York Times article. A White House spokeswoman said that “no long-term decisions had been made,” describing the meeting as a discussion of how to create “a more friendly business environment.”

Markets. The Dow on Tuesday closed down 799.36 points, 3.10%, at 25,027.07. The Nasdaq gave up 283.09 points, 3.80%, at 7,158.43. The S&P 500 dropped 90.31 points, 3.24%, at 2,700.06.

Financial markets closed, commodity exchanges will trade today. The U.S. equity and financial markets will be closed today in observance of a national day of mourning for President George H.W. Bush. But commodity markets will have normal trading hours today.


 

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