Trade Notes: China And Prospects For A New Executive Order

Last week’s meeting between the US and China’s Presidents did not produce much fireworks or headlines. The missile strike on Syria and the North Korean missile launch tended to overshadow the first meeting between the leaders of the two largest economies.  

We understood that both Japan and China have similar strategies for dealing with a mercurial and, perhaps, unpredictable US President. Make small concessions, giving Trump a “victory,” which buys some good will. And most importantly, outlast Trump.Recent rule changes in Japan’s LDP will allow Abe be Prime Minister for three terms. Some suspect that President Xi, the first core leader since Deng Xiaoping, may also be angling to serve a third term.   

Earlier this year, Trump and Abe struck an agreement to hold new trade talks led by US Vice President Pence and Japan’s Finance Minister Aso. We anticipated President Xi would agree to similar talks. It is, after all, a low-cost concession. Sure enough, a cabinet-level talks were agreed with an eye toward reaching an agreement in 100 days.  

Press reports have discussed likely concessions by China, but nothing concrete from the US. However, the Chinese concessions are low hanging fruit.For example, China may lift the ban on US beef imports.They were imposed in 2003 during a mad cow scare. China could have lifted the ban years ago. Before the Xi-Trump meeting, a group of nearly 40 US Senators encouraged the Trump Administration to get China to lift the ban on American beef. The US runs a substantial agriculture surplus with China.China is the largest export market for US agriculture produce, absorbing about a fifth of US agriculture exports.  

The other concession China likely makes will allow foreign firms to have a majority stake in banks and brokers. Previously, under the Obama Administration, China seemed to have been moving in this direction, as a bilateral investment treaty was being negotiated. The outcome of the election froze the talks, and it is not clear that the Trump Administration will allow their resumption.