(Bloomberg) -- Slow progress on key initial demands from Presidents Donald Trump and Xi Jinping is raising doubts about whether the U.S. and China will actually return to the negotiating table to overcome their much deeper differences.
Trump complained again this week that China wasn’t buying the large volumes of U.S. agricultural goods that he claims Xi promised to purchase. Meanwhile, there’s been no improvement in how the U.S. treats telecommunications giant Huawei Technologies Co., a key demand of China.
With the conflict dragging on, reaching a comprehensive trade deal as Trump gears up for re-election next year increasingly seems like a remote possibility, according to people familiar with the matter, who spoke on the condition of anonymity. In addition to differing interpretations as to what was agreed when the two leaders met in Osaka last month, the countries have to decide whether to resume talks based on the draft agreement that collapsed in May, or to start again.
There are clear differences in how the two sides talk about what was agreed at the Group of 20 summit in late June. Trump boasted at a press conference after his meeting with Xi that the Chinese had agreed to buy “tremendous” amounts of agricultural goods. But a member of the Chinese delegation told the U.S. team that Beijing won’t make concessions on agriculture regardless of what Trump announced publicly, a person familiar with the exchange said.
According to that person, Beijing wants to see the Trump administration issue special licenses for U.S. suppliers to resume shipments to Huawei before buying more crops.
Conflicting Views
However, people familiar with Chinese side of the talks say that China will not buy large amounts until it sees concrete progress in the talks. Since the May breakdown in talks, Chinese officials have repeatedly insisted that any deal must meet their three conditions of removing all tariffs, realistic purchase targets, and a proper balance and equality for the two sides.
They have also demanded a reprieve for Huawei and other Chinese companies targeted by U.S. sanctions. When asked last week about Commerce Secretary Wilbur Ross’ statement that Huawei was still blacklisted but U.S. companies could seek licenses to sell to it, the Chinese commerce ministry pushed the U.S. to alter their position.
“We noticed the U.S. comments and we also noticed that Huawei and other Chinese entities are still on the U.S. ‘entity list’ for export control,” ministry Spokesman Gao Feng told reporters in Beijing. “We urge the U.S. to truly implement its commitments and stop the wrongful use of state power to suppress Chinese companies as soon as possible.”
Treasury Secretary Steven Mnuchin earlier this month made calls to multiple American chief executives urging them to seek the exemptions for sales to Huawei, according to two people briefed on his calls. Mnuchin told the executives their applications needed to be filed so that the Commerce Department could approve them.
The Wall Street Journal first reported on Mnuchin’s outreach, and the Treasury Department issued a strong denial of the account.
“As some in the U.S. administration are looking to 2020 as their guide for how and whether to proceed with an agreement with China, the Chinese leadership will be very cautious -- fearing that any agreement reached may not last beyond the Twitter news cycle,” said James Green, who until recently was the senior official from the U.S. Trade Representative in Beijing and is now a senior adviser at McLarty Associates. “So it’s a political decision in China as well.”
Beyond agriculture and Huawei, the sides remain at odds over significant issues such as Washington’s demands for structural reforms to China’s economy and Beijing’s call for the U.S. to remove all existing punitive tariffs on imports from China. Trump’s trade team is now debating whether it would serve his re-election bid well to reach a trade deal with Beijing that he then has to sell domestically in an environment that’s increasingly hostile toward China.
Trump this week reiterated that he could impose additional tariffs on Chinese imports if he wants, a threat Beijing said would only prolong the trade war.
U.S. Trade Representative Robert Lighthizer and Mnuchin are due to talk over the phone with their Chinese counterparts this week. If everything goes well, the two Cabinet officials will travel to Beijing for in-person negotiations. Still, it’s not clear if Beijing will agree to resume talks based on an earlier draft of the agreement that China’s leadership has since rejected.
Trump administration officials feel emboldened by recent weak economic numbers coming out of China and have consistently claimed the their tariffs are hurting China but haven’t had any impact on American consumers. Data from China this week showed the economy slowed to the weakest pace in at least 27 years. Even so the economy still expanded 6.2% from a year ago, with retail sales and industrial output also rebounding in June.