MNI: China Sees US Inflation As Ally In Trade Talks-Advisors

Rising inflation in the U.S. might give China a narrow path to revive slow-drip trade talks, policy advisors in Beijing told MNI, with some however sceptical of a breakthrough ahead of a G-20 summit later this year.

U.S. negotiators may find it difficult to employ tariffs as a bargaining chip in talks which should begin by the end of the year before the Trump-era Phase 1 trade deal expires, said Zhou Xiaoming, former deputy Permanent Representative at China's Permanent Mission to the United Nations Office in Geneva. Instead, with U.S. inflation at a near 13-year high in May, cutting tariffs that would flow down to lower consumer prices might attract Washington to make a deal, he said.

"The U.S. needs the Chinese market and low-price goods to help tame its price surge," said Zhou, adding that tariffs have proven ineffective in reducing the U.S. trade deficit with China. Instead, they act like a tax on U.S. manufacturers and consumers.

But a successful outcome to the talks is by no means guaranteed, Zhou said, noting that China would be unlikely to make the kind of concessions the U.S. seeks, particularly structural changes. The U.S. levies import tariffs on an estimated USD370 billion of Chinese goods though there have been exemptions on some goods.

TRADE POLICY

Despite a renewed emphasis on a rule-based global trade under the Biden administration, Washington would also still want to keep tariffs targeting key sectors including high-tech products and military-industrial items labelled as dual-use, or apply them on certain products to help cut U.S. reliance on supply chains from China, Zhou said.

The clock is ticking for the two-year Phase One trade deal that set targets for China to buy key commodities from the U.S. and came into effect in January 2020, just ahead of the pandemic.

From the Chinese side, a new phase would be possible with a precondition that the U.S. should "show its goodwill" through removing some of the import tariffs going back to 2018, advisors said.

U.S. ECONOMIC PICTURE

"The U.S. may give priority to exclude tariffs for Chinese manufactured goods, especially daily necessities, in the future," said a former head of a government-back think tank who requested anonymity.

Top trade negotiators Liu He of China and Katherine Tai of the U.S. in the past few months have thawed ties effectively frozen in the waning days of the Trump administration, and Chinese advisors expect, but aren't frantically pushing for, a meeting between President Xi Jinping and President Joe Biden at the G-20 in Rome at the end of October.

CHANCES ARE SLIM

While it remains a major question if trade gets top billing should a meeting happen, the two sides are expected to "maintain communications" as groundwork needs to be done, the advisors told MNI.

Shi Yinhong, a U.S. expert from Renmin University and an advisor to the State Council, said there is no indication of moving beyond Phase One to new trade talks.

Shi believes the U.S. won't separate trade from geopolitical issues and that the Biden administration has already shown that it won't rush to undo Trump's trade policies.