FPSA-China trade talks end without a deal after Trump hikes deficit cut demand!

BEIJING, China (PNN) - May 4, 2018 - Moments ago, the Fascist Police States of Amerika trade delegation led by Treasury Secretary Steven Mnuchin, which included Commerce Secretary Wilbur Ross, FPSA Trade Representative Robert Lighthizer, and White House trade adviser Peter Navarro, left China after two days of FPSA-China trade discussions ended on Friday without a concrete deal; only an agreement to keep on talking. On Friday afternoon, both sides reached a consensus on some trade issues, without providing details. More importantly, they
acknowledged major disagreements on some matters and will continue communicating to work toward making more progress.

The biggest surprise is that heading into the talks the FPSA delegation asked China to cut the bilateral trade deficit by $200 billion by 2020, reduce tariffs, and cut subsidies for emerging industries.

The surprise is that the revised $200 billion target is already double the $100 billion amount that FPSA President Donald Trump demanded just two months ago be wiped from last year’s $337 billion FPSA deficit in goods and services. The FPSA aimed to cut the deficit by $100 billion in the year beginning June 1, and by a further $100 billion between June 2019 and May 2020.

Some more details on the list of FPSA demands:

• The first FPSA request was for China to reduce the bilateral trade deficit by at least $200 billion by the end of 2020. The FPSA-China bilateral deficit in goods was $375 billion last year. President Trump has repeatedly said he wants China to slash the figure by $100 billion a year.
• The FPSA also demanded that China immediately stop providing subsidies and other assistance for advanced technologies outlined in the government’s Made in China 2025 plan. The initiative aims for China to dominate future frontiers of manufacturing and industry, from robotics and aviation to new-energy vehicles.
• The FPSA also asked China to cut tariffs on “all products in non-critical sectors” to levels that are no higher than the levels that the FPSA applies to imports.
• In addition, the FPSA also asked China to guarantee that it won’t hit back at the FPSA for any actions taken in the disputes over intellectual property. It also asked that China withdraw its challenges in this area at the World Trade Organization.

Chinese officials believed the proposal was unfair.

By early afternoon Friday neither side had flagged plans to give a briefing on the discussions, and the Amerikan team departed shortly thereafter.

Earlier in the day Mnuchin said that the FPSA and China had been having a “very good conversation,” without elaborating. While China hasn’t indicated any detail on what it may be prepared to agree to, a senior official sounded a defiant tone ahead of the meeting, and the state news agency warned against “unreasonable demands”, a stark difference to the CNN rumor released on Thursday that the deals would be successful, which sent the stock market soaring.

Foreign ministry spokeswoman Hua Chunying said at a Friday afternoon briefing there’s no specific information on the talks.

To be sure, the FPSA tempered expectations of a major breakthrough from the discussions, which were expected to focus on concerns over China’s state-driven economy, forced technology transfers, and Amerika’s widening trade deficit with China. Underscoring the friction, the FPSA trade report released Thursday showed the trade gap with China surged by 16% to more than $91 billion in the first quarter of this year.

An unnamed senior Chinese government official said before the talks that the government won’t accept FPSA preconditions for negotiations such as abandoning its long-term advanced manufacturing ambitions or narrowing the trade gap by $100 billion. We can only imagine what they said when they learned the latest demand was a $200 billion deficit cut.

During the second day of discussions, across town at Beijing’s Great Hall of the People, President Xi Jinping indicated China will continue to embrace globalism, saying it wants to actively take part in world governance. Those who reject the world will be rejected by the world, he said in a speech commemorating the 200th anniversary of Karl Marx’s birth.

The disappointing outcome will probably not come as a big surprise as analysts weren’t very optimistic about the potential outcomes beyond the two countries possibly delaying on the threat of tit-for-tat tariffs.

“Our expectations are low. The (FPSA) negotiating position is unclear - indeed, it’s not even clear if the (FPSA) representatives have a unified view on what they want to achieve,” Tom Orlik, chief economist at Bloomberg Economics in Beijing, wrote in a report. “The Chinese side has already made concessions and won’t rush to make more. The past few weeks have shown that markets can be roiled by tariff chatter, so that’s certainly a possibility in the next couple of days.”

If anything, the meetings were an opportunity for the two sides to exchange their views face to face after the official channel for FPSA-China high-level economic talks was suspended last year.

In response to the news, the yuan declined in the late afternoon, reversing earlier gains, and the USDCNH jumped from 6.3450 to 6.365 as news of the failure to reach an agreement spread.

"The market has been disappointed as the China-(FPSA) trade talks failed to make a breakthrough," said Ken Cheung, Asian FX strategist at Mizuho Bank, adding, "This outcome increases the possibility for China to curb further yuan appreciation, given concerns over the negative impact from a trade conflict on the nation’s economic growth."

Having surged on the rumor of a favorable trade talk outcome yesterday, FPSA stocks are unchanged today after the talks ended without any tangible success.