US-China “trade war” on hold after new talks ease tensions, but is the truce fleeting?

21 May 2018

21 May 2018 --- The sweeping tariffs that US President Trump threatened to impose on China recently are off the table for now after the two countries are on the path to reaching a new agreement on trade – and tensions seem to be easing. US Treasury Secretary Steven Mnuchin said over the weekend that the Trump administration was putting “the trade war on hold,” suspending tariffs on Chinese imports so that the two economies could thrash out a new deal that will reduce the merchandise trade deficit.

It appears the two nations seem to be making progress during the round of new talks in Washington recently and after many thought the world’s two biggest economies were on the brink of an all-out trade war, there is a new wave of optimism that both countries can negotiate a way forward.

Earlier this year President Trump had threatened to impose extensive tariffs on approximately US$150 billion in Chinese imports, punishing the country for what he described as unfair trading practices.

Chief among Trump’s tariffs was the 25 percent and 10 percent tariffs on imported steel and aluminum products which then prompted China to retaliate with a series of suspending tariff concessions, many of which included agri-food products.

Products affected include frozen pork, almonds, pistachios, wine and fresh and dried fruit. To compensate for losses because of the steel and aluminum tariffs imposed by Trump, China’s Ministry of Finance said it was imposing the punitive measures on food, having previously warned that it would do so in an earlier announcement in March.

China’s list covered 128 products with the government imposing a 15 percent tariff on 120 categories (US$1 billion) covering products like fruit and wine, and the second group of eight product lines worth a further US$2 billion, like the 25 percent tariff on pork.

Initially, China’s tariffs did not cover soybeans, a principal export from the US, but that quickly changed as China then said it planned to slap sanctions on the major commodity, which could have seriously hurt the US soybean industry.

Loss of leverage

The “trade war” has been escalating over the last few months, but now appears to have taken a more diplomatic turn. As the trade talks press forward, this, in turn, puts pressure on the Trump administration to secure the kind of tough deal it has been promising to protect US workers.

President Trump has long criticized what his administration perceives as unfair trading practices in China that have culminated in a sizeable trade deficit which increased US$0.6 billion to US$34.0 billion in December 2017, according to the US Census Bureau and US Bureau of Economic Analysis.

Much of the detail of any new negotiations are understood to be undecided at the moment and the tariff reprieve has led some to raise a point of concern over the loss of leverage. President Trump’s U-turn could plunge the US into the kind of long-winded negotiations with China with minimal results, as experienced by previous US administrations.

Leading purchaser, processor and transporter of soybeans in significant supply chains around the world, Cargill has previously told FoodIngredientsFirst how damaging a trade conflict between the two world economies could be and urged both countries “to get to the negotiating table to constructively address their concerns with each other in a time-bound manner.”

Evidently, this is now happening.

The American Soybean Association (ASA) was not immediately available for comment, but FoodIngredientsFirst has requested an up to date response from the organization which was also deeply concerned over the escalating trade war between the US and China and how it would severely damage the soybean sector.

China purchases 61 percent of total US soybean exports, and more than 30 percent of overall US soybean production.

What will happen next?

Questions remain over the real detail of any new deals. The current easing of tensions will only last as long as the two countries can come to an agreement. Tariffs threats and the so-called “trade war” could, in theory, be back on the table at any moment.

By Gaynor Selby