by Trade Correspondent L.C.:
Presidents Trump and Xi Jinping met on June 28th on the sidelines of the G20 Summit in Osaka and agreed to a tariff standstill and resumption of trade talks. The new engagement doesn’t come with any clear instructions for reaching a successful outcome; the move is seen as a buying-time exercise. To reach this outcome, the US appears to have made more concessions than China, The most high-profile US move was President Trump’s decision to ease the restrictions on transactions between US companies and Huawei. The Chinese telecommunications manufacturer will now be able to purchase US components but not sell its equipment in the US.
While the president appeared to be using the Huawei / national security issue as a bargaining chip – something politicians and others of both parties strongly warned the President not to do and condemned him for afterwards – it doesn’t necessarily undercut the US claim that Huawei‘s equipment could compromise networks and systems, since the ban on using Huawei’s hardware and services remains in place, at least for now.
Nonetheless, at his long press conference in Osaka, President Trump reported that he had told Xi he eased the Huawei restrictions, and that he made this decision in part to help US companies — especially semiconductor-makers for which Huawei is a major customer. He also said that he plans to meet with his officials to discuss easing other restrictions placed on Huawei.
In advance of the meeting the Wall Street Journal reported that Xi was bringing a list of preconditions that must be satisfied for him to agree to restart the trade talks, led by removal of the ban on Huawei. So the US president had to do something on this matter, but the US will still be able to pressure other countries to shun Huawei equipment since the US is still doing so.
Although just what the President promised on Huawei is ambiguous, Senators Marco Rubio (R-FL) and Chuck Schumer (D-NY) immediately tweeted that if he “agreed to reverse recent sanctions against Huawei he has made a catastrophic mistake” (Rubio) and if he “backs off, as it appears he is doing, it will dramatically undercut our ability to change China’s unfair trade practices” (Schumer). Rubio promised that Congress would put the restrictions back on with a veto-proof majority. Administration economic adviser Larry Kudlow’s assurance that Trump wasn’t giving Huawei a “general amnesty” did not reassure.
Nor is it clear that the US got more than it gave. All the US got, according to the president, is that China agreed to buy more US agricultural products. Beijing didn’t confirm this. If it does, this will entail Chinese government interference in commercial decisions and likely WTO-illegal moves to skew purchases toward US suppliers.
What China apparently got includes the suspension of new tariffs, the easing of limits on Huawei, and improved access to visas for Chinese students. The president abstained from commenting on China’s human rights abuses in Hong Kong, Xinjiang, Christians, Falun Gong, etc.
There are no indications that Beijing will reenter the talks with resumed commitments to change its laws that the US claimed it reneged on – which led to the talks’ collapse. Or that it is preparing to offer deep structural reforms that go beyond what it has already unveiled, or will pull back on implementing onerous parts of its cybersecurity or anti-monopoly laws. So no one is predicting that the coming talks will move quickly or even that they won’t immediately head into a stalemate.
The president put things in a more positive light. At his press conference – where he declared that the US “is winning the trade war” – he claimed that US-China relations are “right back on track” and in the trade talks, “we’re going to work with China where we left off.”
Pressure on the president to reach a deal to avoid the tariffs had continued to intensify up until the deal was announced. It came from the business community as well as US allies and Republicans in Congress.
EU-Mercosur FTA draft concluded
The EU and Mercosur announced on June 28th that they have concluded a draft free-trade agreement. In the works for two decades, the preliminary EU-Mercosur FTA is a major accomplishment. It comes the same week as the signing of EU-Vietnam trade and investment agreements.
Mercosur is a common market comprising Argentina, Brazil Paraguay, and Uruguay. If successfully concluded, the deal with Mercosur will be the largest trade agreement the EU has entered. For Mercosur it will be a deal with its largest trade and investment partner. Latin America seems to be finally putting dependency theory and its stubborn protectionist past behind it.
The talks were buffeted by outbreaks of intensified protectionism within Mercosur, which has high auto and other industrial tariffs, and within the EU, where the French and others resist opening farm markets. There is also environmentalist opposition “to save the Amazon.” EU member countries and the EU Parliament will have to approve the finalized agreement.
Despite the obstacles to be overcome, EU Trade Commissioner Cecilia Malmstrom will be taking a victory lap five months before she leaves office. Under her leadership over the past five years, Brussels concluded trade agreements with Japan and Canada and a number of smaller countries. It also updated its old FTA with Mexico — in addition to the trade and investment accords signed this week with Vietnam.
Argentina’s statement welcoming the agreement called it “historic” and said Mercosur has struck a trade deal with the EU that will mean “the integration of a market of some 800 million people” and “about a fourth of the world’s GDP.”
Mercosur is also holding trade discussions with South Korea and Canada and considering integrating with the Pacific Alliance, which is comprised of Chile, Colombia, Mexico, Peru.
Impact on the US and UK
The EU-Mercosur agreement is an awkward development for the US and the UK. While President Trump likes to talk about the trade agreements he intends to negotiate — and a deal with Brazil has been high on his list — if the EU-Mercosur agreement is implemented, Brazil will have free trade with the EU instead, harming US exporters to that large country.
For the UK, the more free trade agreements the EU signs, the less credible is the Brexiteer argument that London had to leave the bloc so that it could trade more freely with other countries.
The US will be wondering why Brussels agreed to discuss agriculture with Mercosur — even opening its agriculture market — while refusing to put agriculture on the agenda of US-EU trade talks.
The EU-Vietnam agreement
The EU announced on June 25th that its Council of Ministers has approved the EU-Vietnam trade and investment agreements, paving the way for signing both on June 30th in Hanoi.
The EU got this deal – which includes concessions by Hanoi and significant benefits for the EU – through patient negotiations without employing the trade threats that the Trump administration has levied at trading partners in its thus-far unsuccessful efforts to win new trade deals.
President Trump seemed to acknowledge this in a June 26th Fox Business TV interview in which he didn’t reference the new trade deal directly but disparaged both the EU and Vietnam. He declared that, “Europe treats us worse than China” and that “A lot of companies are moving to Vietnam, but Vietnam takes advantage of us even worse than China.”
Although the president didn’t articulate what he is considering doing regarding Vietnam, analysts took his remark seriously. The president’s comments created yet more uncertainty for businesses that are considering moving out of China. Vietnam, as well as Mexico and India, are preferred destinations for relocating factories. President Trump has raised the possibility that US imports from all these countries might be subjected to additional tariffs the businesses want to escape by leaving China.
The president also, once again, denounced the Trans-Pacific Partnership (TPP), through which Vietnam would have slashed duties on US products, as “set up to take advantage of us.” As a consequence of the EU-Vietnam deal, US exporters will be put at a further disadvantage in the Vietnamese market as EU exports, like those of the TPP-11 countries, enter with lower duties.
The EU provided details of the trade agreement: It “will eliminate nearly all customs duties on goods… in a progressive way that fully respects Vietnam’s development needs” and “also contains specific provisions to remove technical obstacles, such as those in the car sector, and will ensure that 169 traditional European food and drink [geographical indications]… are protected in Vietnam…. EU companies will also be able to participate in bids for procurement tenders… on an equal footing with domestic companies.”
Now that the European Council has given its consent, the trade agreement will need only approval by the European Parliament to take effect. The investment agreement will need ratification by each EU country.
Fortunately for President Trump, none of his 2020 Democratic presidential opponents have been offering an alternative to his faltering trade initiatives.
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