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Trade war

US and China face even higher hurdles as trade talks resume

Both sides signal no rush toward deal or tariffs with major rifts still in place

China's Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer failed to seal a deal during last ditch trade talks in May.   © Reuters

WASHINGTON/BEIJING -- The U.S. and China have resumed trade negotiations after last month's summit broke a deadlock, but both sides are still preparing for a protracted battle as key issues remain far from settled.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke by phone on Tuesday with Vice Premier Liu He and Commerce Minister Zhong Shan. A senior Washington official said only that the two sides are continuing negotiations to resolve the remaining points of contention, without offering even a time frame for face-to-face talks.

"There is no time limit on China. There is no speed," National Economic Council Director Larry Kudlow said Tuesday at an event hosted by CNBC, implying that a deal could be a long way off.

The last 10% of the talks will be "tough," he said.

Some analysts see little chance of additional tariffs within the next few months ahead of celebrations to mark the 70th anniversary of modern China's founding on Oct. 1 -- a top priority for Chinese President Xi Jinping. And U.S. President Donald Trump agreed last month to postpone threatened duties on another $300 billion in Chinese imports after he met with Xi on the sidelines of the G-20 summit in Osaka.

But the hurdles to an agreement look higher now than they did when talks broke down in May, suggesting that another long stalemate lies ahead.

Chinese imports of American agricultural products are a potential point of tension. Trump declared after his meeting with Xi that China would buy a "tremendous" amount of food and farm goods, but there has been no sign of such spending yet.

"Xi made no specific commitment during the meeting" despite Trump's pushing for him to do so, the South China Morning Post reported Tuesday.

Taoran Notes, a Chinese state-affiliated blog, warned Friday that China would not buy U.S. agricultural products if Washington flip-flopped again in trade talks, signaling that Beijing is willing to use them as a bargaining chip.

Structural issues including forced technology transfers and cyberattacks will need to be renegotiated, as an alleged Chinese retreat on these points reportedly sank the previous talks in May.

And the two sides have yet to agree on how to handle the punitive tariffs already in place. Washington wants to keep some even after a deal is reached, a position that Beijing has refused to accept.

"All tariffs that have been imposed must be removed if China and the U.S. come to an agreement," Commerce Ministry representative Gao Feng told reporters last week.

Some progress has been made on Washington's treatment of China's Huawei Technologies, another sticking point.

U.S. Commerce Secretary Wilbur Ross spelled out for the first time Tuesday some details of the sanctions reprieve mentioned by Trump after his meeting with Xi.

While Huawei will remain on a U.S. blacklist, Washington will issue licenses to do business with the telecommunications equipment maker in cases where there is "no threat to national security," he said. He stipulated that the department will still review requests with a presumption of denial.

"Within those confines, we will try to make sure that we don’t just transfer revenue from the U.S. to foreign firms," he said. Kudlow noted at the CNBC event that the components in question could be sourced from South Korea, Taiwan or Vietnam.

Even after this loosening, however, U.S. suppliers remain unlikely to be able to sell high-tech components or software to Huawei. And a senior Washington official said the company will remain shut out of American fifth-generation wireless networks.

The Commerce Department may put out more specific guidelines later on. But where the line will be drawn will remain unclear until applications start coming in, a former U.S. official said.

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