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US-China Trade Talks Resume In Shangai With Minor Expectations

Chinese and American negotiators meet again this week in Shanghai during tempered expectations for breakthroughs in their year-long trade battle nearly three months after their trade talks broke down in acrimony.

Two days of talks are planned to resume on Tuesday following an uncomfortable truce achieved last month by Presidents Donald Trump and Xi Jinping on the side-lines of the 20-summit group in Osaka, Japan. However, there are still deep tensions, and the latest days have brought blended signals from both parties, with neither demonstrating any desire to compromise.

While China has stated its willingness to purchase U.S. agricultural products, it has also called the U.S. the “black hand” behind Hong Kong’s anti-government demonstrations and said Friday an inquiry into FedEx’s allegations that it erroneously redirected Huawei packages to the U.S. discovered extra-legal violations.

The health of a global economy weighed down by market and corporate uncertainty is at stake. Last week, the International Monetary Fund further decreased its worldwide growth projections and warned that harm was “self-inflicted” to some extent by extended trade war-induced uncertainty, escalating technology tensions, and Brexit.

“There is still an enormous divide on important sticking points between the two parties,” said Robin Xing, chief economist for China at Hong Kong’s Morgan Stanley. “There is no clear route to an extensive agreement to date.”

China’s adherence to its three main requirements: the instant removal of all current tariffs, a balanced agreement, and realistic objectives for further Chinese purchases of American products. There would be no achievement if the US adhered to its current position during the Shanghai talks, said Friday Taoran Notes, a blog run by the state-owned newspaper.

The US should first remove all extra tariffs if it wishes to achieve an agreement, and the only way to achieve agreement is equality and respect between the two parties, it said. China is not scared of threats from the US to impose tariffs on Chinese products worth an extra $300 billion, it said.

Structural reforms of China’s economy increased protection of intellectual property rights, and a more balanced trade relationship is among the requirements of the US.

Tensions over geopolitical problems, including Hong Kong, North Korea, Taiwan, and the South China Sea, hamper the opportunities for an arrangement. Huawei continues a main point of contention, with China urging the US last week to block a suggested bill that would prevent the Chinese telecommunications giant from accessing US patents.

Some in the U.S. government is also worried that trade minister Zhong Shan’s high position in Shanghai may bode ill for the discussions. He has a reputation as a hard negotiator and is seen as a hard-liner by some on the American side that could make conversations even more hostile than they have already been.

Although he has not appointed Zhong, in the latest weeks Kudlow has advised a number of times that the Chinese side’s incorporation of fresh “hard-liners” could complicate attempts to secure an agreement and thus lead Trump to impose more tariffs as he has threatened. Nevertheless, China analyst Pauline Loong, managing director of Asia-Analytica research business in Hong Kong, rejects such a perspective.

“This isn’t a little talk about giving and taking on minor problems,” she said. “The concessions now required to conclude an agreement will require decisions at the level of the Standing Committee of the Politburo, not at the level of the negotiating team.”

According to a White House declaration, the debates will cover a variety of problems including intellectual property, compulsory technology transfer, non-tariff barriers, farming, utilities, trade deficit, and enforcement.

Trump said on Friday that China may wait for an arrangement to be signed after the US presidential election in 2020 because Beijing would prefer to achieve an accord with a Democrat. “I believe China is likely to say,’ let’s wait,'” he told Oval Office journalists. “When I win, they’re all going to sign agreements like almost instantly.