Speaking with reporters several hours ahead of a lunch meeting, Trump said that he would be discussing the US blacklisting of Huawei Technologies Co as well as a broader trade deal. He also said the two leaders and their negotiators had made progress during preparatory discussions on Friday evening.
“A lot was accomplished actually last night,” Trump said. “The relationship is very good with China. As to whether or not we can make a deal, time will tell, but the relationship itself is really great,” Trump said, adding that he and Xi continued to have “a very good friendship.”
A temporary freeze on further US tariffs, as well as Chinese retaliation, while talks get back underway has been discussed by negotiators before the leaders’ lunch at the Group of 20 meeting in Japan, according to people briefed on the talks who asked not to be identified.
After almost a year of trade war, the stakes couldn’t be much higher. A return to the negotiating table would end a six-week stalemate that’s unnerved companies and investors and dampen the threat of a further escalation. Failure to do so would likely upset financial markets already whipsawed by mounting risks to a slowing global expansion.
Trump’s comments came after Xi spent much of the summit’s first day Friday promising to open up the Chinese economy, and chiding – though not naming – the US for its attack on the global trading system.
In remarks to African leaders on Friday, Xi took a not-so-subtle swipe at Trump’s “America first” trade policy, warning against “bullying practices” and adding that “any attempt to put one’s own interests first and undermine others’ will not win any popularity.”
Any cease-fire would at least temporarily reduce fears that the world’s two largest economies are headed into a new cold war, though a broader conflict is viewed as increasingly inevitable in both Beijing and Washington.
Concern about the standoff has prompted investors to bet on central-bank easing, and pile into havens. Treasury yields have tumbled to their lowest level in years. The Japanese yen, a traditional beneficiary of flight to quality, has gained, while the US dollar has slipped across the board, including against China’s yuan. Stocks have seesawed on each new twist in the trade tug-of-war.
In that fraught environment, even a return to negotiations won’t guarantee a deal. Since the talks collapsed on May 10, Trump has raised tariffs on US$200 billion of Chinese goods to 25% from 10%. In recent days, he’s indicated that the next step could be a 10% tariff on all remaining imports from China – some US$300 billion-worth, from smartphones to children’s clothes.
5G battle
Another big hurdle, referenced elliptically by both leaders on Friday, is last month’s US blacklisting of Huawei on national security grounds, which threatens to cut off the Chinese giant’s access to American technology.
In a meeting on the digital economy on Friday, Trump said the US wanted to ensure that 5G networks around the world were secure. His administration has been lobbying allies around the world not to buy Huawei equipment, which the US says could be used for Chinese espionage.
At the same session, Xi called out the US over Huawei and said the G20 should uphold the “completeness and vitality of global supply chains.”
“Things have escalated enormously,’’ said Paul Blustein, a senior fellow at the Center for International Governance Innovation in Canada, and the author of “Schism,” a forthcoming book on the US and China’s increasingly tense relationship.
China insisted this week that Huawei must be removed from the blacklist under any deal. It’s an option Trump has said he’d consider – but his willingness may not be enough. “There’s immense political pressure on him not to do that,’’ Blustein said.
Ahead of the pack
All these pressures have hardened the fundamentally different worldviews and goals in the two countries. Preliminary talks before the presidential lunch in Osaka have focused more on how to get a cease-fire than on resolving those bigger issues, according to people briefed on them.
Trump used to cite the reduction of America’s goods-trade deficit with China – which reached a record US$419 billion last year – as his main aim. But his administration’s focus has shifted to limiting Chinese access to US innovation. China’s government has responded with increasingly harsh rhetoric that underscores its readiness for a long battle.
Other disagreements that caused talks to break down include how to enshrine the Chinese reforms demanded by the US, over intellectual property theft and industrial subsidies, and when and how to lift the tariffs that Trump has come to view as his most powerful economic tool.
Despite a backlash from American businesses, the president remains convinced that tariffs have given him leverage over trading partners – and that they’ve helped the US economy while hurting China’s.
“I view tariffs differently than a lot of other people,’’ Trump told Fox Business Network in an interview ahead of his G20 trip. “And by the way, since tariffs have been on, our market has gone through the roof, if you know what I’m talking about.’’