Has China succumbed to the art of the deal?

Hot Air.com ^ | May 20, 2018 | JAZZ SHAW

[Kaslin]

>How real is the deal? We may not know for a couple of weeks yet (if not longer) but recent talks between China and the United States have resulted in an initial announcement that Beijing will prioritize closing the trade gap with the U.S. by purchasing significantly greater amounts of goods. Included in the few details offered thus far is a plan to increase both agricultural and energy exports from America. While China’s Foreign Ministry disputed some of the target amounts, the rest of the announcement looks as if it may soon become a reality. (CNN)

Both parties said in a joint statement on Saturday that China has agreed to “significantly increase” purchases of US goods and services, in order to reduce the trade imbalance between the two countries. This was a top demand of the Trump administration during two days of trade talks in Washington with Chinese officials.

“To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services,” the statement said. “This will help support growth and employment in the United States.”

The pledge for more cooperation comes as the US and China, the world’s two largest economies, have threatened tens of billions of dollars in tariffs that could lead to a trade war.

Business Insider has another nugget from the Chinese announcement which, if confirmed, could be even bigger. They’re reporting that the agreement includes a pledge that China will “advance relevant amendments to its laws and regulations” to allow for more American imports, including changes to patent laws. (My emphasis)

If China is actually ready to start showing more respect for patent laws and intellectual property rights, that would be a game-changing moment in international relations. They’ve consistently been among the worst on the planet in terms of stealing the intellectual capital of others, engaging in reverse engineering and taking over manufacturing sectors through the use of cheaper labor and government subsidies.

So China must be getting something in return for all of this, right? One part of it had to be the already realized objective of saving ZTE, the major Chinese phone company that Trump already agreed to bail out. Beyond that, there’s probably some face-saving agreements in terms of trade in the other direction, but mostly they might just be looking to avoid a trade war with a White House administration which showed no signs of backing down. In fact, Chinese Vice-Premier Liu He, who was in charge of the negotiators in Washington, is quoted as saying, “The two sides reached a consensus, will not fight a trade war and will stop increasing tariffs on each other.”

President Trump needed to close the trade deficit (being one of his campaign promises) and the Chinese really don’t want to get into a massive trade war and deal with all manner of tariffs and restrictions. Trump had already begun putting such measures in place and it sounds like the Chinese didn’t see any way to call his bluff. (Because he apparently wasn’t bluffing to begin with.)

It’s also likely that neither side wanted to see the military escalation go any further. At the same time as Xi Jinping was working with Trump to broker a deal over North Korea, the Chinese were launching a new aircraft carrier group and acting increasingly hostile in the South China Sea. But that leads to one question in terms of what else China might have gotten in the bargain. Did the White House give some sort of indication that we weren’t going to be quite so “enthusiastic” when it comes to defending Taiwan now that their new government is making increasingly loud noises about independence?

Again, those details will need to wait. But something in the Sino-American relationship changed this weekend. I’m sure Trump’s critics will find plenty of room to complain, but it’s honestly difficut to see this as a negative development if the details turn out to be as advertised.

[karnage]

Winning.

MAGA.

[Don Corleone]

Imagine if Trump actually had help.

[Mr. K]

Liberals (since they have no problem screwing over people) think “the art of the deal” was about screwing your opponent (like they do)

It was more about making a deal where both parties walk away happy. That’s just good business all over.

[central_va]

You can’t close the trade gap without retaliatory tariffs. No other solution is possible.

[House Atreides]

I’m reserving judgment until I see the Trade deficit with China actually beginning to plummet significantly. The Chinese also understand and are masters of the art of the deal and aren’t adverse to stalling, lying and cheating.

Let’s not count our chickens just yet!

[CutePuppy]

Has China succumbed to the art of the deal?

There is a "reality TV" and there is a reality.

Reality TV: The U.S. side in recent days advanced ideas that China agrteed to some $200B in deficit reductions. Now the U.S. side says that China agreed to "substantial reductions in trade gap" — in other words, it means whatever you want it to mean. "Details" to be worked out "later" or as they say "we don't need any stinking details" — take it as a "win"

Reality: Chinese strenuously denied that they agreed to specific targets nor could they, really. Outside of military, national security and specific G2G / government-to-government "strategic deals" (like energy. minerals or water), the countries don't really buy much from other countries — the "trade deficits" (i.e., current account deficits) are mostly private transactions between private businesses and are dicated by basic supply and demand — simple capitalistic formula, known well before Adam Smith described it in "The Wealth of Nations".

So here is the Chinese version of the "deal": China Will 'Significantly' Boost U.S. Purchases. By How Much is the Question :

• Beijing envoy says both sides pledge to avert trade war

  China will "significantly increase purchases" of U.S. goods, the White House said as Beijing's special envoy at talks in Washington declared a trade war has been averted between the world's two largest economies. .....

  Vice Premier Liu He, a special envoy of China's President Xi Jinping, told reporters in Washington that talks with Treasury Secretary Steven Mnuchin, Secretary of Commerce Wilbur Ross and U.S. Trade Representative Robert Lighthizer ended with a pledge not to engage in a trade war, according to a Xinhua news agency report.

  ..... Liu said both sides agreed to stop "slapping tariffs" on each other and called his visit "positive, pragmatic, constructive and productive," Xinhua reported. Cooperation will be enhanced in such areas as energy, agriculture, health care, high-tech products and finance, a "win-win" choice for both nations. ..... < snip >

  ..... "Investors had been fretting," Oliver said. "U.S. energy, agriculture, manufacturing and services companies with significant exposure to exports to China will be key beneficiaries. But it's also a big positive across Asia given supply chain linkages to Chinese companies that ultimately export to the U.S." ..... < snip >

To translate, that's the diplo-speak for the fact that nothing has changed from before the "trade wars are good and easy to win" entered the picture. e.g., see In a landmark for Trump, South Korea agrees to open its auto market - FR, post #11, 2018 March 26.

Chinese (and other governments' politicos) are pretty good at the "Art of the deal" and the "Art of the 'Talk'" and the "Art of bamboozle." Trump administration gets to save face because everybody understood that slapping tariffs on China would lead to retaliation (see for example soybeans and "sorghum trade" that went to other countries after several ships from the U.S. were turned around in April when China abruptly cancelled the order and arranged to buy the same from Russia, and short time later agreed to buying more of Russian oil and gas / energy at the expense of the U.S. trade).

So the drama is over and everybody can claim a "win" — yaay!

Refs:

Report: Ships carrying US sorghum stuck at sea after China imposes tariffs - TheHill, by John Bowden, 2018 April 20

Trump asks China to slash trade deficit $200B by 2020 - TheHill, by John Bowden, 2018 May 04

"When it comes to negotiations, both sides can provide a list of requests and we will seek common ground while reserving our differences," a professor at a Chinese university specializing in economics told the AP. "If one side provides a list with unreasonable requests, the Chinese government is unable to accept it." .....

..... "China will never trade off its core interests," added Hu Xijin, the chief editor of the Communist Party-affiliated Global Times. .....

..... "The U.S. demand of cutting the trade gap is baseless, and can't be done by the Chinese government," said He Weiwen, the former commerce ministry official. "It's at least good the two sides decided to keep talking, though one can't rule out the possibility of a trade war."

Trump's Tariff Hammer Won't Hit China's IP Nail - Bloomberg, by Tim Culpan, 2018 March 22

ZTE Folly May Spur Chinese Chip Push - Bloomberg, by Tim Culpan, 2018 April 17

[arthurus]

Closing the trade gap is not important compared to the major advantage of China that being the Chinese requirement and the Americans’ acquiescence in the transference of the American technology to the Chinese.

[CutePuppy]

More useful references re "trade deficits" / current account balance and the real drivers of the economy and budget deficits:

* Trump's confrontational trade stance is just boomeranging back to imperil U.S. | Tension is just reinforcing macro flows that lead to wider U.S. trade deficit - MW, by Gregg Robb, 2018 May 19

With the ... rising budget deficit, the U.S. is relying more on foreign money flows to pay our bills.

With the increased uncertainty from trade disputes, even more money will flow into the haven of U.S. assets.

With so much money pouring in from overseas, the U.S. capital account is forced into surplus. And given that the capital account and current account must balance out, the U.S. inevitably runs a trade deficit .....

..... Targeted tariffs might narrow a bilateral balance with China, but that won't necessarily fix the broader trade deficit .....

..... There is also the opposite risk — that the trade tensions upset U.S. relations with key partners just when the U.S. economy needs foreign capital to fund its spending spree. < snip >

** The U.S. is almost guaranteed to have large trade deficits year after year | A low savings rate makes shrinking the trade gap much harder - MW, by Rex Nutting, 2018 March 12

< snip > ..... Trump seems to believe that the deficit is the result of other countries taking advantage of the U.S. by dumping their underpriced goods on us. All the U.S. needs to do to reduce the trade deficit down to zero (he says) is to rewrite the trade rules. It's just a matter of leveling the playing field so that the United States sells just as much (or more) to China, Mexico, Canada and Europe as they sell to us. ..... < snip >

..... Trump's simplistic answer ignores a structural imbalance in the U.S. economy that practically guarantees a large trade deficit year after year. I'm talking about the chronic lack of savings in the United States, which forces us to either cut back our investments in the future or else borrow hundreds of billions of dollars from foreigners. ..... < snip >

..... However, businesses don't invest to be patriotic; they do it to make money. So far, businesses are hopeful, but cautious about capital spending. ..... < snip >

Meanwhile...

*** Merkel to Seek China as Free-Trade Ally on Beijing Trip - BL, by Sarah Syed, 2018 May 19

• China has been Germany's biggest trading partner since 2016

  German Chancellor Angela Merkel said she'll renew efforts to enlist China as an ally on free trade when she visits leaders including President Xi Jinping in Beijing next week. ..... < snip >

[Dennis M.]

South China Sea - war is coming.