On Thursday, US and Chinese negotiators will be face to face for the first time since the trade talks hit a huge bump in the road on Sunday when President Trump announced he would impose tariffs on China on Friday.
The talks on Thursday will be crucial for the next steps in the US-China trade conflict. It will be critical whether the two sides can resolve the challenges and avoid the tariff increase on Friday. If not, it is a sign that the two sides are 'digging in' and we could then be faced with a period of very high uncertainty and further declines in stock markets. We see it as 50-50 whether we get the tariff increase or not.
What we know:
Tariff increase: On Monday US Trade Representative Robert Lighthizer and Treasury Secretary Stephen Mnuchin confirmed that the current plan is to raise tariffs on Friday at 12:01 am (06.01CEST Friday morning). They did not comment on the other part of Trump's tweet that said tariffs of 25% on another Chinese imports of USD325bn would be implemented shortly.
What could change this? According to Mnuchin the tariffs would go up unless the Chinese delegation brings a new proposal that would satisfy the US side.
Reason for the U-turn: According to Lighthizer and Mnuchin, the reason for the turn of events was China retreating on previous offers. According to sources close to the US side, China had made 'systemic edits' to a nearly 150-page draft trade agreement that would blow up months of negotiations, see Reuters 8 May. Specifically, a change that would mean certain parts of the deal would not be written into Chinese Law would have triggered fury on the US side. According to the sources, China's top negotiator Liu He told the US team last week that they needed to trust China to fulfil its pledges through administrative and regulatory changes. However, the US has very little faith that China will live up to the changes unless they are written into law.
Timing of trade talks: The talks in Washington are scheduled for Thursday and Friday. China confirmed on Tuesday that Liu He would come to Washington on Thursday, one day delayed from the original plan.
China's response to the tariff threat: After being silent for a while, Chinese state media started to release a response to the tariff threat and the view was mostly defiant. The strongest words came from People's Daily's WeChat account Tuesday: "Things we think are advantageous for us, we will do it even without anyone asking " adding that "Things that are unfavourable to us, no matter how you ask, we will not take any step back. Do not even think about it ", see SCMP 7 May. Other articles highlighted the resilience of the Chinese economy and that China had measures to keep the economy stable. An article in the generally more nationalistic Global Times had the headline "China ready for any outcomes in trade talks with US", Global Times 8 May. The article says "No matter what the US side wants to do in the negotiations, China has the confidence to handle it. The worst-case scenario is that the negotiations break down and Washington comprehensively raises tariffs. Even if this happens, the Chinese economy will be able to withstand it." However, China has also stated it is open to continue talks for mutual benefit, hoping that the two sides can "meet each other half way".
To read the entire report Please click on the pdf File Below..