More US-China trade tensions expected after disappointing talks

More US-China trade tensions expected after disappointing talks
US Secretary of the Treasury Steven Mnuchin (left), Chinese Vice Premier Wang Yang (center) and US Secretary of Commerce Wilbur Ross pose for a photo before an opening session at a US and China comprehensive Economic Dialogue at the US Department of the Treasury July 19, 2017 in Washington, DC.

Little action was expected at Wednesday's US-China Comprehensive Economic Dialogue, but despite the low bar, the event still yielded lackluster results - an indication of further bilateral strains ahead.

"It was a little bit of a disappointment," said Nicholas Consonery, senior director at business advisory firm FTI Consulting.

Small deliverables, potentially a new opening in the Chinese market for US companies as a goodwill sign to Washington or a one-year framework for further negotiations, were anticipated, yet discussions fell short of that mark, Consonery said.

US and Chinese officials concluded talks without issuing a joint statement and cancelled scheduled news conferences in what many analysts took as a sign of deep-seated disagreement on trade and investment issues - key themes of the inaugural event.

"It's petty clear that something broke down at the talks," said Christopher Beddor, Asia associate at consultancy Eurasia Group. "The general feeling in Washington is that this [dialogue] was underwhelming."

At the heart of the matter are key differences between what President Donald Trump wants and what President Xi Jinping is willing to provide.

Washington seeks increased exports of American goods to the mainland in order to reduce its trade deficit. The US also wants broader Chinese market access for American companies and a clean-up of Chinese industries battling excess supply. The White House is now considering steel tariffs, with Trump telling a reporter on Wednesday that it "could happen."

Beijing, however, already has its own campaign to reduce overcapacity, so "for Xi to accede to US demands on that front, it would be one of the most blatant giveaways to the Americans," Beddor said.

That is, agreeing to Washington's quantitative targets when Beijing has already set a benchmark elsewhere in the system would be difficult, he said.

"This is coming at a time when Xi's preparing for the 19th Party Congress so this is a very politically sensitive time for him," Beddor added.

Given Trump's willingness to press on overcapacity, more trade tensions are now likely in the second half, said Consonery.

Due to the fundamental differences between both administrations and the outcome of Wednesday's meeting, "some sort of trade action is increasingly likely," said Beddor.

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