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Trade War

China to propose buying more farm products and LNG from US

Second round of talks may bring progress but closing trade gap will be hard

The U.S. and China will hold a second round of talks in Washington on May 17 and 18 aimed at cutting China's trade surplus.

WASHINGTON -- As China and the U.S. prepare for their second round of trade talks in Washington later this week, Beijing plans to propose expanding imports of agricultural products and liquefied natural gas from the U.S., according to diplomatic sources. In exchange, China wants the U.S. to ease restrictions imposed on telecom equipment maker ZTE.

Prospects for a larger deal remain cloudy. Beijing has refused Washington's demand that it revise policies aimed at fostering strategic industries, which the Trump administration says unfairly subsidizes Chinese producers at American companies' expense.

Treasury Secretary Steven Mnuchin, Secretary of Commerce Wilbur Ross and U.S.Trade Representative Robert Lighthizer are among the participants from the U.S. Peter Navarro, assistant to the president and a longtime China critic, will not join the talks, the sources said.

On the Chinese side, Vice Premier Liu He; Yi Gang, head of the central bank; and other high-ranking agriculture, finance, and telecom and technology officials have arrived in Washington. The talks will focus on three issues: reducing the trade imbalance, easing sanctions on ZTE, and reviewing "Made in China 2025," Beijing's policy aimed at giving the country an edge in strategic industries.

At the first round of the talks held in Beijing earlier this month, the two sides presented their demands. The discussions this time may yield progress in whittling down China's vast trade surplus with the U.S. and reversing Washington's earlier move to sanction ZTE over alleged national security risks.

Washington's larger goal is cutting China's trade surplus by $200 billion, from $375 billion in 2017. In response, China is finalizing measures to increase imports from the U.S., including soybeans, pork and other farm products; semiconductors; as well as energy and mineral resources, such as LNG. Washington also wants Beijing to open its auto, financial and other sectors wider. 

China wants the sanctions against ZTE lifted. The Commerce Department in April slapped a seven-year ban on the Chinese telecom company doing business with U.S. companies for allegedly violating international trade sanctions against Iran and North Korea.

That has made it difficult for ZTE to source semiconductors and other key parts, forcing the company to suspend smartphone sales. President Donald Trump has said he wants to ease the sanctions, and the Commerce Department is working on a detailed plan to do so. In March, Trump announced punitive tariffs on $50 billion worth of Chinese goods over alleged intellectual property violations.

China is calling for the duties to be scrapped, but Washington says it wants Made in China 2025 drastically altered in return, something Beijing is unlikely to do. Neither side is likely to yield in the contest for dominance in high technology, particularly in areas with military applications. Discussions on China's industrial policy are thus likely to yield little progress.

But despite the possibility of resolving the ZTE dispute, many experts believe that fundamentally rebalancing the trade relationship between the world's two largest economies will be difficult and time consuming.

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