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Trade war

US-China trade truce puts Beijing in the driver's seat

With Trump tariffs on hold indefinitely, Xi looks to the 2020 American election

OSAKA -- The leaders of the U.S. and China agreed on June 29 to restart trade talks in their meeting here, with U.S. President Donald Trump postponing a new round of tariffs and suggesting to relax a ban on exports to China's Huawei Technologies.

With no deadline set for the conclusion of the trade talks, Beijing suddenly finds itself under significantly less pressure and in position to conduct future negotiations at a pace of its choosing.

"We're holding back on tariffs," Trump said in a news conference after his meeting with Chinese President Xi Jinping.

While speaking to reporters for more than an hour, Trump seemed less clear cut about the logic of conceding to the Chinese side.

In one major reversal, Trump said he will also allow U.S. companies to continue to sell products to Huawei, the smartphone maker, after his administration had in effect banned the sale of high-tech components and software to Chinese companies placed on what Washington calls its "entity list." 

"We send and we sell to Huawei a tremendous amount of products that goes into the various things that they make and I said that that is ok," Trump said. American companies "were having a problem," he said. "The companies were not exactly happy they could not sell," to Huawei.

The Trump-Xi summit lasted just over an hour, much shorter than the two and a half hours that they spent talking when they last met seven months earlier in Buenos Aires.

Analysts say that little progress has been made since the talks collapsed in early May. Trump has repeatedly said that "China wants a deal," and threatened to slap additional tariffs on $300 billion worth of Chinese goods if the two sides made no progress, but Xi remained silent.

When they finally met in Osaka, the two leaders agreed to resume trade negotiations but did not set specific targets, such as the 90-day negotiation period set last time.

Not only did Trump postpone the tariffs, he did so indefinitely.

"I'm not rushed," Trump said, removing the sense of urgency of the trade talks. "I want to get the deal right."

With the pressure off, Beijing will be looking at the 2020 U.S. presidential election as it decides its next steps.

The timeline of recent events suggest that China is watching the elections carefully. Days after Democratic presidential candidate Joe Biden said in early May that the Chinese were "not bad folks," and that they were "not competition," Beijing scaled back on trade deal talks with the Trump administration, backpedaling from an agreement that U.S. Treasury Secretary Steve Mnuchin called "90% of the way there."

Sensing a prolonged battle ahead, the Chinese side seems to be toughening its stance on agricultural purchases as well. While initially agreeing to $1.2 trillion in purchases of American agricultural products and energy, the Chinese side is now demanding a flexible target based on demand, sources say.

If Trump looks to settle for quick wins ahead of the presidential election, efforts to push for China's structural reforms may end half baked.

The stumbling blocks in the trade talks still remain unsolved. Washington has taken issue with Beijing's "Made in China 2025" initiative that seeks to elevate Chinese high-tech companies through massive state subsidies.

The U.S. side has called for an end to such government support saying that it hurts the competitiveness of American rivals. China has refused, opting to stick to its model of a centralized government-led economy.

"The restart of the trade talks, along with the truce on new tariff increases, is good news," said Wendy Cutler, vice president at the Asia Society Policy Institute and a former U.S. trade negotiator.

"But this does not mean that the trade war is over. The negotiators have tough outstanding issues to work through and it's not clear that either side is ready to move off of their positions."

The bruising trade war has taken a toll on both economies. China's May industrial output dropped to levels not seen since 2009, just after the Lehman crisis. Growth in investment by manufacturers is also at record lows.

On the U.S. side, the business sentiment index of manufacturers is at the worst in two and a half years, the lowest since Trump came into office.

Taisei Hoyama in Washington contributed to this report.

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