Trade truce puts focus on next steps in US-China talks

President Trump’s trade truce with Chinese President Xi Jinping over the weekend brought a temporary pause to dueling tariffs between the world’s largest economies, but the two leaders will soon need to forge a path toward a final deal to ensure the economic gains aren’t short-lived.

Trump and Xi on Saturday did not announce a timeline for further trade talks, nor did they appear to make significant progress over the stickier points of a broader agreement. And while Xi reportedly agreed to boost purchases of U.S. agricultural goods, Beijing has not committed to a host of economic reforms Washington has demanded in exchange for tariff relief.

{mosads}But Trump told reporters at the White House on Monday evening that trade talks with China had “already begun,” adding that U.S. and Chinese officials “are speaking very much on the phone but they’re also meeting.”

The president also said Saturday after meeting with Xi that the U.S. was “going to work with China on where we left off, to see if we can make a deal.”

For some economists, that message wasn’t strong enough.

“We see little evidence that any substantive progress has been made in bridging the gap on key, long-standing issues,” said Lewis Alexander, chief economist at investment firm Nomura, in a Monday research note. “Thus, we continue to believe that the US will move forward with additional tariffs on the remainder of US imports from China at some point in the near future.”

But news of the cooling off period did give a boost to financial markets, with the S&P 500 hitting a record high Monday.

Businesses in the crosshairs of Trump’s trade battles praised the pause in economic hostilities, while also questioning the wisdom of the conflict and the costs that come with it.

{mossecondads}“Pumping the brakes on any further tariffs is good news for U.S. consumers, American farmers, and our industry’s 1.3 million men and women,” said Kip Eideberg, vice president of government and industry relations for the Association of Equipment Manufacturers, a trade group representing construction and farm equipment makers.

“The protracted trade war fueled by dueling rounds of tariffs has so far not accomplished anything other than making it more expensive to manufacture in the United States,” he added in his statement.

Trump faced immense pressure heading into Saturday’s meeting with Xi at the Group of 20 summit in Japan. For months, lawmakers and industry have been anxious for progress toward a deal to end the U.S-China trade war, which began its second year Monday.

While Trump and Xi were not expected to strike a deal Saturday, the summit was seen as a crucial step toward a long-sought final agreement. The immediate risk of escalation appeared to ease after Trump and Xi emerged with a deal to hold off on the additional tariffs.

Trump has already imposed 25 percent tariffs on $250 billion in Chinese imports. The import taxes have raised prices on hundreds of industrial products, raw materials, chemicals and other manufacturing components.

Trump has also threatened to impose tariffs on the roughly $300 billion in Chinese imports he has not yet subjected to import taxes, which would cover thousands of consumer goods not easily available from countries other than China.

Further tariffs on Chinese goods would prompt more retaliation from Beijing, which has already imposed import taxes on $60 billion in U.S crops and livestock. The Chinese response has crushed the vulnerable U.S agriculture sector, which is already reeling from low commodity prices and severe weather.

Trump warned on Monday that he would not be easily satisfied, telling reporters at the White House, “If we don’t make a great deal, if we don’t make a fair deal — it has to be better for us than for them because they had such a big advantage for so many years.”

Trump’s tariffs have been successful in forcing China to the negotiating table. But the import taxes have failed to yield commitments from Beijing to halt alleged intellectual property theft, forced technology transfers and other anti-competitive practices Trump has pushed for in trade talks.

“They’ve got a fair amount of work ahead of them if this is going to lead to some sort of negotiated deal,” said Warren Maruyama, a partner at the law firm Hogan Lovells who served as U.S. Trade Representative general counsel from 2007 to 2009.

“It could end up in a long-term stalemate. I don’t think either one of them benefits from that, but again, they both have political constraints and no one commits to trade deals if it means you’re committing political suicide,” he added.

Failing to clinch a trade deal with China poses its own political challenges for Trump as he seeks reelection in 2020. Trump’s pledge to restore industrial jobs through new trade terms with China was crucial to his appeal in Midwest states that paved his road to the White House.

Without progress on his trade agenda, Trump may be vulnerable to losing the support of blue collar workers in Ohio, Michigan, Pennsylvania and Wisconsin — all states that he won in 2016.

“Trump needs some things to show that he’s actually moved China” on “longstanding concerns that go back 15, 20 years,” Maruyama said.

The economic strain of the trade war in the U.S. and China has also darkened the global outlook. The Federal Reserve opened the door to an imminent interest rate cut last month over concerns the economy could turn sour if trade talks stall.

Republicans have also expressed anxiety over the length and cost of the trade war, particularly for family farms affected by Chinese retaliation.

Trump on Saturday touted Xi’s commitment to purchasing U.S. crops, which have fallen drastically with Beijing’s tariffs.

“Our farmers are going to be a tremendous beneficiary,” Trump said. He hailed U.S. farmers, who’ve largely stood by Trump amid the high costs of the trade war, as “great patriots.” 

But the uncertain fate of a trade deal with China and concern about what comes next could complicate Trump’s support in farm states.

Chinese tariffs on U.S. crops have cost American farmers billions in sales. The trade war has hit soybeans growers and hog farmers particularly hard as China has turned to Brazil and Mexico to satisfy its demand for pork and pig feed.

“I worry that even if there’s a trade agreement, that from a Kansas point of view, that we will now have a lot of work to regain the markets that we’ve lost,” said Sen. Jerry Moran (R-Kan.) on Thursday, before Trump’s meeting with Xi.

“China is a hugely important market, and particularly in regard to soybeans, which we raise a lot of. So there’s a lot of challenges in the absence of trade, in the short term, but even in the long term,” he said.

Updated at 6:39 p.m.