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US demands China slash trade gap, reducing odds of a deal

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US Treasury Secretary Steven Mnuchin (L) and US Commerce Secretary Wilbur Ross (R) walk through a hotel lobby as they head to Diaoyutai state guest house to meet Chinese officials in Beijing on May 4, 2018.

[BEIJING] US demands that China narrow its trade surplus by US$200 billion raised the hurdle for any overarching deal as two days of trade talks neared an end in Beijing with few signs of progress.

The US delegation, led by Treasury Secretary Steven Mnuchin, asked China to decrease the trade deficit by at least US$200 billion by the end of 2020 compared with 2018, according to a document seen by Bloomberg News that was sent ahead of the trade talks in Beijing. By early afternoon Friday neither the US nor their Chinese counterparts had flagged plans to brief the public on the discussions. The US delegation is due to leave China Friday evening.

Earlier, Mr Mnuchin said that the US 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.” There is no specific information on the talks at this moment, foreign ministry spokeswoman Hua Chunying said Friday afternoon.

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The closed-door discussions between President Donald Trump’s economic team and officials in Beijing began Thursday, amid a ban on China’s largest media outlets reporting any material beyond official press releases related to the talks, according to people familiar with the matter.

The US 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 America’s widening trade deficit with China. Underscoring the friction, a US report released Thursday showed the trade gap with China surged by 16 per cent to more than US$91 billion in the first quarter of this year.

China’s government won’t accept any U.S. preconditions for negotiations such as abandoning its long-term advanced manufacturing ambitions or narrowing the trade gap by $100 billion, a senior Chinese government official, who asked not to be named, said late Wednesday.

As Mr Mnuchin and the others headed out for 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.

Analysts weren’t optimistic about potential outcomes beyond the two countries possibly delaying on the threat of tit-for-tat tariffs.

“Our expectations are low. The US negotiating position is unclear - indeed it’s not even clear if the US representatives have a unified view on what they want to achieve,” according to Tom Orlik, chief economist at Bloomberg Economics. “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.”

The meetings are an opportunity for the two sides to exchange their views after the official channel for US-China high-level economic talks were suspended last year.

Mr Trump has threatened to impose tariffs on as much as US$150 billion of Chinese goods to punish China over its IP practices if the talks fail to yield progress, a move that China said would spark retaliation in equal measure on American exports.

The US is also looking at ways to crack down on Chinese investment in the US in an effort to balance the scales and protect sensitive technology. China has announced tariffs on US$3 billion of US goods such as pork and wine in retaliation for new global steel and aluminum tariffs imposed by Mr Trump. The US levies were aimed at tackling China’s overcapacity.

Mr Trump sounded a more positive note as his economic team entered the talks in Beijing. “Our great financial team is in China trying to negotiate a level playing field on trade!,” Mr Trump tweeted as they arrived in Beijing. “I look forward to being with President Xi in the not too distant future. We will always have a good (great) relationship!”

China’s official Xinhua News Agency said in a commentary Wednesday that the US should show sincerity in trade talks instead of making unreasonable demands. China will take retaliatory steps of the same intensity if the US puts tariffs on its goods after the talks, Xinhua said.

The discussions should involve equal-footed consultation and mutual respect, and work toward mutual benefits, a Chinese foreign ministry spokeswoman told reporters in a regular briefing on Thursday. Chinese Vice Premier Liu He, Xi’s top economic adviser, is leading his nation’s delegation.

BLOOMBERG