“They have made no progress”.
That’s what a source told the South China Morning Post about deputy-level trade talks aimed at setting the stage for principal-level discussions set for Thursday between Liu He, Bob Lighthizer and Steve Mnuchin.
On Monday and Tuesday, Chinese vice-minister for finance Liao Min zeroed in on just two areas for possible concessions and cooperation: farm purchases and intellectual property protection. Chinese delegates “refused to talk about forced technology transfers [and] skirted the issue of state subsidies”, a source told SCMP. US equity futures careened lower on the news, as did the offshore yuan.
Just before the closing bell on Wall Street, Reuters reported that the Chinese side was lowering expectations for the talks in the wake of escalations from the Trump administration, which blacklisted Chinese surveillance giant Hikvision (and a hodgepodge of related companies and entities) on Monday and rolled out an extremely contentious travel ban on Tuesday.
Wednesday found US shares surging on reports that Liu was still prepared to strike a “limited” deal with the Trump administration, but the euphoria seemed a bit misplaced in light of the news flow from Sunday and Monday.
Earlier this week, Fox cited the Chinese commerce ministry in reporting that although Beijing is open to an interim deal, China will not change their laws on intellectual property. Over the weekend, reports indicated China has narrowed the scope of any potential agreement, taking concessions on state subsidies off the table.
Positions have likely hardened following the new blacklistings and visa restrictions. More chatter around choking off capital flows to Chinese assets doesn’t help.
SCMP’s reporting on Wednesday evening is entirely consistent with the notion that Xi is willing to buy farm products, but that is about it. “The Chinese delegation is planning to leave Washington on Thursday after just one day of principal-level talks”, a source said. Previously, Liu and his team hadn’t planned to leave Washington until late Friday.
As of late Wednesday evening, the situation was still “fluid”.
Safe to say, it's an extremely fluid situation. As of 8pm, @WhiteHouse negotiators' information was that Liu He would depart Friday.
A principal now tells @CNBC Friday is an "open question." One possibility that Liao Min stays and Liu leaves. A Thursday departure also possible.
— Kayla Tausche (@kaylatausche) October 10, 2019
If there is no agreement of any kind, 25% tariffs on $250 billion in Chinese goods will ratchet higher next week to 30% and 15% levies on an additional $160 billion in products will remain scheduled for December 15.
For his part, Trump told reporters on Wednesday afternoon that he’d love to make “the right deal” with China.
It is doubtful whether an agreement that does not include any concessions other than some token language around IP theft and a promise to buy more soybeans and pork counts as “right”.
Another source told SCMP that hardliners in the Trump administration deliberately timed the new tech crackdown and visa restrictions to coincide with the trade talks so as to ensure that no “interim” or “limited” agreement would be possible. In other words, Trump’s trade hawks make have purposefully undermined the discussions.
That source delivered a rather amusing (if sad) assessment of Liu’s predicament. “I mean just imagine being poor Liu He flying in. What the f*** are you supposed to do?”