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China To Demand Lifting Of Huawei Ban As Precondition For Trade Truce

A set of terms.

Guess what? China wants the Huawei ban lifted.

In the weeks since the Trump administration blacklisted China’s corporate crown jewel, it’s become clear that the move to cripple the tech giant by cutting it off from US technology was a bridge too far for Beijing. Placing Huawei on Commerce’s entity list clearly suggested that Donald Trump has more in mind than simply addressing bilateral trade deficits and leveling the proverbial playing field.

Following the Huawei bombshell, Chinese state media started beating the nationalist drum and Xi appeared to be preparing his people for a protracted economic war. Trump’s move to place four firms tied to China’s super-computing industry on the entity list only underscored worries in Beijing that the US is seeking to contain China and undermine the country’s long-term ambitions.

Read more: Trump’s ‘Key Worry’ On China May Not Be IP Theft Or 5G, One Bank Says

Clearly, all of this makes it far more difficult for Xi to come to terms with Trump and, on Thursday, the Wall Street Journal cited Chinese officials in reporting that Xi will demand the Huawei ban lifted as a precondition for resolving the spat.

“Xi plans to present President Trump with a set of terms the US should meet before Beijing is ready to settle a market-rattling trade confrontation, raising questions of whether the two leaders will agree to relaunch talks”, the Journal said.

The news crossed just hours after Ministry of Commerce spokesman Gao Feng reiterated that the US would need to meet Vice Premier Liu He’s three conditions as communicated on multiple occasions in May.

“China’s core concerns must be addressed properly”, he said, at a regular briefing. Trump would have to remove the extra tariffs, ensure that targets for Chinese purchases of US goods are in keeping with real demand (read: consistent with reality) and craft the text of the deal to reflect “balance” in order that both sides preserve their “dignity”.

As late as Monday, Liu and Bob Lighthizer were said to disagree on how “balanced” any deal could ultimately be. The US continues to insist that the text of the agreement primarily reflect Chinese concessions to atone for “decades” of unfair practices, while China wants “balance” in the wording.

As one trade expert told Bloomberg Thursday, “Trump has to spin it as if everything in the US-China relationship has changed and Xi has to spin it as if nothing has changed. It’s hard to come up with a deal on that basis”.

If Trump and Xi cannot come to an agreement to restart talks (which it sounds like may be contingent on the US lifting the Huawei ban), it’s likely the US president would move ahead with tariffs on the remainder of Chinese goods, perhaps starting at a 10% rate.

The next round is going to hurt more than previous rounds. “Because many of the categories of imports not yet hit by tariffs are sourced largely from China, our analysis suggests that further tariffs would be harder to avoid through trade diversion, resulting in either large inflationary effects or a large reduction in imports”, Goldman cautioned on Wednesday.


 

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3 comments on “China To Demand Lifting Of Huawei Ban As Precondition For Trade Truce

  1. H,

    I can’t really tell from the news story, but I think the granularity is important: is the implication that these are conditions that must be met before the negotiations even restart (i.e. at the G-20), or are they just conditions that have to be met to reach the final deal?

    There’s a pretty striking difference between those two, given Trump’s MO of initiate tariffs before negotiations and then keep them on after negotiations as compliance insurance. Less than 0% chance that Trump would fulfill those conditions before restarting the negotiations.

  2. Yeah, no way this will work out. The only question is how high the escalation goes and when it begins.

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