FORUM Financial WARS

Jan 17 2019

Means war. Negotiations between China and the United States are doomed

Despite the trade war unleashed by the Donald Trump administration against Beijing, exports of Chinese goods to the United States grew by 11.3 percent. In general, the foreign trade of China in 2018 showed record results, exceeding 4.6 trillion dollars. What will prevent China from repeating this success in the new year is in our material. 

Gas attack 

Chinese imports from the US also increased, but only by 0.7 percent. The main reason for this imbalance is the decline in US energy supplies. 

Fuel is the only position in which Washington had a surplus in trade with Beijing, and it strongly influences the overall balance. However, in the fall, Chinese companies stopped buying American oil and liquefied natural gas (LNG). 

As Reuters emphasizes, Chinese demand for American oil was weakened not only by the trade war, but also by high transportation costs, making overseas supplies uncompetitive. 

“Chinese companies have little incentive to buy American black gold when raw materials are available from Iran and Russia,” analyst at SIA Energy consulting company Sen Yik Ti noted in a Reuters comment. – However, trading tensions also do not help. Because of the constant threat of increased duties, the heads of national oil companies are hesitant to buy crude oil in the United States if the authorities do not order it. ” 

According to the PRC Customs Service, the country’s oil refineries completely stopped buying American oil in October, although total imports rose to a record 40.8 million tons (9.61 million barrels per day) in the same month. The main suppliers of black gold were Russia, Iran and Saudi Arabia

There is a similar situation with CNG. In 2017, the People’s Republic of China bought about 3.6 million tons of liquefied gas from the United States – this is the second after Australia (4.8 million tons) result (the third from Qatar – 2.7 million tons). 

However, last year, the export of American LNG to the Celestial Empire steadily declined and in October completely stopped. Although in general, China has increased gas imports by almost a third: from 94.6 billion cubic meters in 2017 to 124.75 billion. The American share of the Chinese gas market was shared by Russia, Australia and Qatar

No talking 

According to the official representative of the Main Customs Administration of China, Li Kuiwen, China last year “effectively coped with changes in the external environment.” However, the Chinese official warned that in 2019 a slowdown in the growth rate of turnover is quite likely. 

The main reason for the inevitable decline in foreign trade in China is considered to be increased protectionism. In other words, Beijing does not create illusions about the successful completion of negotiations with the United States and is preparing to resume the active phase of the confrontation. 

Recall that on December 1, US President Donald Trump and Chinese President Xi Jinping agreed to suspend the trade war for 90 days. Before March 1, Washington and Beijing must conclude a new agreement, otherwise the White House will impose duties on all Chinese goods. 

The first round of the US-China consultations took place last week in Washington, but did not bring any results. The parties reported that they had achieved ‘great progress’ and agreed to continue discussions on January 30-31 in Washington. Negotiators will have to face serious obstacles. 

First, this is a shutdown blocking the work of the US government due to the budget crisis. Since most of the officials of the US Department of Commerce went on unpaid leave, there is simply no one to prepare negotiations with the Chinese. Moreover, the shutdown may well last until February, and the most pessimistic analysts say that Trump and Congress will not agree on a new budget until spring. 

In this case, there will be no negotiations and the trade war will resume from March 1 by default.

Fight for the future Internet 

The second obstacle is the Huawei case. On February 6, a Canadian court must order the extradition of the financial director of the company Meng Wangzhou to the US, who was arrested on December 1 in Vancouver at the request of the American authorities. 

Both Washington and Beijing pretend that the arrest of Maine is not related to trade disputes. However, the media in both countries directly associate this business with the technological race that China has imposed on the States. 

The fact is that Huawei is the world leader in the development of fifth-generation Internet networks (5G). According to experts, the company owns more than ten percent of all patents related to the new technology: from data transmission to mobile network security

According to the estimates of the research company IHS Markit, by 2022 the turnover of the mobile 5G market will reach 11 billion dollars, and the lion’s share of this money will go to those whose technologies will be most prevalent. Americans really don’t want Huawei to take the lead, promising full commercialization of 5G networks by 2020. That is why Washington launched an undeclared war against the Chinese companyfrom espionage accusations to the arrest of a top manager

It is unlikely that a new round of the US-China negotiations should take place a week before the Canadian court decides on the case of Meng Wangzhou – this will allow the trade representatives of both countries to leave the problem behind brackets. But if, due to the shatdaun, the dates for the new meeting of the US and Chinese trade representatives move, the negotiators will have to discuss the Huawei case. This will significantly reduce the chances of resolving contradictions. 

Take your money 

Chinese high-tech development plans today are the biggest obstacle to ending the trade war between Beijing and Washington. In August, Donald Trump ordered the Committee on Foreign Investment in the United States (CFIUS, includes representatives from the Treasury, the Department of Homeland Security, the Department of Defense, the State Department and five other departments) to monitor foreigners ’attempts to buy blocks of shares in US startups and block such transactions if they pose a threat of leakage. technology abroad. 

This measure is obviously aimed primarily against Chinese investors, who until recently had invested billions of dollars in American high-tech companies

In November, CFIUS submitted a draft decree, according to which foreign investors are required to receive a committee permission for any investments in start-ups related to ‘critical technologies’, including artificial intelligence, robotics and data analysis. 

After that, according to the research company Rhodium Group, China has curtailed investment in American technology startups. “Transactions involving Chinese companies, Chinese buyers, and Chinese investors have virtually ceased,” lawyer Nell O’Donnell, who represented American technology companies in deals with foreign buyers, told Reuters. “Chinese investors refused to make new deals and stopped meeting American startups.” 

And in December, China responded symmetrically to the Americans by publishing a so-called negative list of industries for which foreign investors are restricted or denied. These are 147 sectors of the economyfrom mining and agriculture to manufacturing. 

It is clear that it is almost impossible to resolve all these differences in three or four rounds of negotiations. Therefore, the resumption of the trade war between China and the United States with a total increase in import duties becomes inevitable.

USA News. American News.

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