[Analytics] US could possibly drop 10 per cent tariffs in trade war talks

US Treasury Secretary Steven Mnuchin (centre) leaves a hotel in Beijing. Photo: Bloomberg

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China also is proposing parallel talks aimed at resolving Huawei CFO’s extradition case, according to sources. Reform verification mechanism could be a stumbling block in ending the trade war. Wendy Wu specially for the South China Mprning Post.

Chinese and American negotiators remain far apart on a key US demand meant to ensure Beijing honours any commitment to equal market access and intellectual property protection – an issue the US team sees as crucial in reaching a deal to end the months-old trade war, sources familiar with the situation said.

In the latest round of talks underway in Beijing, both sides also are discussing the possibility of the US’ removing the 10 per cent punitive tariffs it has imposed on US$200 billion of Chinese products, while leaving the 25 per cent tariffs on US$50 billion of Chinese products unchanged, two sources said.

In return, China could pledge to make structural changes that would better protect the intellectual property of foreign companies doing business in China, would expand access to Chinese markets and reduce hefty state subsidies, one of the sources said.

One of the sources said that during the last round of talks between the countries in Washington, China raised the idea of setting up a parallel dialogue aimed at resolving Huawei Chief Financial Officer Meng Wanzhou’s extradition case. Huawei, a Chinese telecommunications giant, faces criminal charges in the US and is increasingly being excluded from the 5G market in Western countries.

It is not clear whether the company’s status is a prominent issue in the Beijing talks.

With the March 1 expiration of the 90-day trade war ceasefire now just two weeks away, the latest negotiations pick up where the talks that concluded at the end of January left off. Jointly chairing the talks are Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin.

Creating a framework to monitor China’s implementation of structural industry reform is a top priority for the US team, especially United States Trade Representative Robert Lighthizer.

The US has repeatedly said China does not have a good track record when it comes to implementing its commitments, and its reluctance to trust Beijing has left the countries far apart in their negotiations, a source close to the US government told the South China Morning Post.

The US delegation has repeatedly insisted that any deal on structural reform must be verifiable and monitored. Under a verifiable mechanism, if China failed to deliver on its promises by an agreed period, the US would immediately impose or raise the tariffs on Chinese products.

Beijing, however, has used the softer phrase “implementation mechanism” to describe the framework for monitoring China’s actions, and resists the idea of giving the US power in this regard, the sources said. The source added that China refused to accept an overhaul of its economic model as a condition for proving its commitment to reform.

Another source familiar with China’s position said it worries that the US would use the verification mechanism to make additional demands on the technology front, which is at the centre of a growing rivalry between the two countries.

If a deal to end the trade talks cannot be reached by the March 1 deadline, the US has said it will increase its punitive tariffs on US$200 billion of products to 25 per cent from the current 10 per cent.

Hopes for a breakthrough in the trade war are increasingly riding on the potential for US President Donald Trump and Chinese President Xi Jinping to meet in face-to-face talks in the coming months.

Bloomberg, citing unnamed sources, said on Wednesday that Trump was weighing whether to extend the trade war truce’s expiration date by 60 days.

However, Larry Kudlow, the director of the White House’s National Economic Council, said on Thursday that “no decision” had been made on extending the tariff truce beyond March 1.

“I’ve talked to the group [in China],” Kudlow told reporters. “They’re covering all the ground. They’re hard at it. They are going to meet with President Xi, so that’s a very good sign. They’re just soldiering on. The vibe is good. I can’t give you details.”

Additional reporting by Owen Churchill

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