China wants a trade deal, but will defend its interests if necessary
- Ahead of the annual meeting of the National People’s Congress, a senior Chinese diplomat has called for a mutually beneficial agreement
- The two nations are said to be close to a deal
China is cautiously optimistic about reaching a trade war deal with the US, but it is prepared to retaliate if Washington returns to tariffs after the Xi Jinping-Donald Trump meeting expected this month, analysts said.
They made that assessment after a senior Chinese diplomat called on China and the United States to strike a trade deal and avoid a confrontation he said his country did not want, but will respond to if necessary.
Zhang Yesui, a spokesman for the National People’s Congress and a former vice foreign minister, said the two nations had achieved substantial progress in resolving their trade dispute after a meeting in Washington last month between Chinese Vice-Premier Liu He and US negotiators.
“The nature of the China-US economic and trade relationship is mutually beneficial. Therefore, I hope that both sides can seize the opportunities to continue consultation for a mutually winning agreement,” Zhang said on Monday before the NPC’s annual meeting.
But he said that China would defend its interests, if necessary, in any dispute.
The two nations are close to a trade deal that could lift most or all US tariffs, as long as Beijing follows through on pledges ranging from better protection for intellectual property rights to buying a significant amount of American products, according to two sources.
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Chinese officials have made clear, in a series of negotiations with the US in recent weeks, that the quick removal of levies on US$200 billion of Chinese goods was necessary for the finalisation of any deal, the sources said.
As part of the talks, the US has asked the Chinese not to retaliate or to involve the World Trade Organisation in response to any US tariffs that could be imposed to enforce the deal, a person familiar with the negotiations said.
Dates for a summit between Trump, the US president, and Xi, his Chinese counterpart, are yet to be agreed, although The Wall Street Journal, which reported that the US and China were close to finalising a trade pact, said the meeting could take place around March 27.
China is understood to be offering to lower tariffs on US farm, chemical, car and other products and would also buy US$18 billion in natural gas from Houston, Texas-based Cheniere Energy.
As part of a deal, China is pledging to speed up the timetable for removing foreign ownership restrictions on automobile ventures, and to reduce tariffs on imported vehicles to below the present rate of 15 per cent, according to The Wall Street Journal.
In addition to their trade disputes, China and the US have also confronted each other in the contested waters of the South China Sea and in technology.
But Zhang said the relationship between China and the US over the past four decades had been stable, bringing many benefits to the people of both nations.
“As the two nations have had differences in their history, social systems and development, differences and disputes are unavoidable, but this does not necessarily lead to confrontation and division,” he said.
“A confrontational China-US relationship will benefit no one, and using a cold war mindset to solve new problems that have occurred because of globalisation will lead to no way out.”
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Analysts are optimistic that a deal may be reached this month, but failure to do so would leave Beijing with few options but a return to tariffs.
“Both sides are very serious and keen to make a deal. But if there’s no deal, the tariff war will go on. It will be difficult for China not to retaliate, as it has claimed it will defend its interests,” said Tu Xinquan, a trade analyst at the University of International Business and Economics in Beijing. “Even if there is a deal, we don’t know whether both sides will cancel tariffs.”
Nick Marro, Hong Kong-based analyst at the Economist Intelligence Unit, said that Zhang’s comments showed China did not want to give too much away in negotiations with the US.
“China is in a very tight spot, but it’s made clear that it has red lines that it won’t cross. Abandoning its industrial policy, for example, has largely been off the table from the start. That’s less of a strong front than it is a non-starter.”
The failure of Trump and North Korean leader Kim Jong-un to reach a deal at their summit in Vietnam had raised questions about the US’ commitment to reaching a deal with China, he said.
“We’re seeing conflicting reports from the US trade team, and Trump’s willingness to walk away from the North Korea summit without a deal could hint at his willingness to do something similar with China,” he said.
Tommy Wu, senior economist at Oxford Economics. said “the US side is closely watching China’s reactions at this time”.
He said Washington would look for signals from Beijing, such as its handling of the proposed legislation on foreign investment, a law meant to strengthen protection of intellectual property, which is expected to figure highly at the “two sessions” in the Chinese capital over the next two weeks.
Additional reporting by Bloomberg
