Reading the Tea Leaves at US-China Economic Talks
The United States and China entered this week’s US-China Comprehensive Economic Dialogue with wildly diverging agendas and goals.
The US wanted to achieve some concrete progress on reducing the US trade deficit with China, while China sought to emerge from the talks with a framework for further talks and some sort of common working agenda. Neither side achieved its goals and ended the meeting after canceling a planned joint press event.
Investors read the tea leaves by concluding it more likely that the Trump administration will slap tariffs and/or quotas on steel imports, sending US steel companies shares soaring. United States Steel, AK Steel, and Nucor—three of the largest US producers—all closed higher after the meeting came to its abrupt close.
The US Department of Commerce has been conducting a so-called Section 232 investigation with respect to both steel and aluminum for months. Commerce’s recommendations to President Donald Trump were expected by now but have not yet been forthcoming.
The US blames overcapacity in the Chinese steel producing sector for trade deficits and for hurting the domestic industry, even though only around five percent of US steel imports come from China, and US steelmakers aren’t in such dire straits. Canada is the biggest exporter of steel to the US.
In his opening remarks to dialogue, US Secretary of Commerce Wilbur Ross said China’s $347 billion trade surplus with the US was not the product of market forces and that the bilateral trading relationship needed to change.
“We must create more balance in our trade by increasing exports of made-in-America goods to China,” said Ross at the talks, which were held at the Treasury Department. “There are significant opportunities to do this if we can work together to remove the significant barriers that continue to exist.”
Chinese officials pointed out their country recently agreed to accept shipments of US beef and liquefied natural gas. The US wanted the two sides to craft an economic plan to reduce the US trade deficit with China.
“China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve,” a joint statement from Ross and treasury Secretary Steven Mnuchin said. “The principles of balance, fairness, and reciprocity on matters of trade will continue to guide the American position.”
The statement was bland and non-confrontational, but it didn’t mention that any progress was made during the talks either. However, a comment from Chinese Vice Premier Wang Yang, who headed his country’s delegation suggested that threats were made during the talks.
“Dialogue cannot immediately address all differences,” Wang told China Daily, “but confrontation will immediately damage the interests of both.”