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Opinion | Trade talk: China is not in a hurry

By Alan Leung, Blogger specialized in current affairs

The Office of the US Trade Representative, Katherine Tai, spoke with 14 international trade officials since having been sworn in on March 18, however it did not include the Chinese chief trade negotiator, Vice-Premier Liu He. Tai said a trade meeting between China and the US will take place "when the time is right" and confirmed the US tariffs on Chinese imports are set to remain.

Tai further warned that "yanking off tariffs" had the potential to harm the economy unless the changes are communicated in a way so that the actors in the economy can make adjustments and having the ability to plan for changes which affect their future is essential whether they're companies, traders, manufacturers or their workers. She also said that no negotiator walks away from leverage.

The Chinese Ministry of Commerce also confirmed last week despite the fact the phase one trade deal calls for the US Trade Representative to meet with the Chinese chief trade negotiator every six months, a meeting that is already two months overdue, there is "no relevant information" about possible US-China trade talks following the meeting in Alaska between senior officials.

In fact America will benefit more if the tariffs are lifted. The delay in the tariffs talks makes little difference to China. They're already adjusted and are comfortable with the Dual Circulation policy to become self-sufficient, make domestic consumption the driver of the economy and develop trade together with existing more friendly and reliable business partners. So, even if America suddenly lifts the tariffs, China would not change its policy.

A study by Harvard's Alberto Cavallo showed that Chinese companies didn't lower their prices much in response to the tariffs. According to this study, it was only about 1% and the other 19% was left for US importers to pay. However, US exporters had to lower their prices by about 5% of the 15% on goods subject to China's retaliatory tariff. Though, China's share of tonnage shipped to those retailers has dropped to 60–70% from 80–90% before the tariffs.

China has a lot more alternative sources to choose from for most products they import from the US. As for the high-tech goods that the US are competitive in are currently subjected to export restrictions which are highly unlikely to be removed. Whereas, US companies have much fewer alternatives to the Chinese products, especially when China's infrastructures and complete supply chain are taken into consideration, so their competitiveness isn't very high which means Chinese suppliers face lesser competitive pressures to lower prices to offset tariffs.

In addition, studies have shown the merchants are currently absorbing much of the tariff by thinning profit margins, a 20% tariff resulting in only a 0.7% increase on the prices, but evidence indicated when the tariffs were first announced importers front-loaded purchases to beat the new duties. Thus, US consumers are expected to be hit much harder in the near future, as prices will need to increase to shore up profit as retailers work through the inventory and restock goods that are subject to the tariffs.

Furthermore, the ongoing high-tech export restriction may have short term impact on China high-tech industries. However, it has pushed China to completely beef up her R&D and speed up the development of her own products for national security and stability. Once these programs bear fruit, not only will the US lose its last leverage over China but will also completely lose the Chinese market and will have to compete against China's lower price products of similar technology on the international market.

Hence, the delay in trade talk indicates that the Biden administration is currently clueless as to what to do with Trump's dead knots, particularly after the recent Alaska meetings as it becomes clear that China will no longer allow itself to be bullied in international diplomacy and on the negotiations table. Yet, under the current economic and political situation in the US, the Americans are much more urgent in solving the issue but cannot allow themselves to be shown in a position of weakness.

China is not in a hurry as she always planned to play a long term game. It is best if the US can delay the meeting for a few years. As the Dual Circulation policy matures China will not only become more self-sufficient but with the development of the domestic consumption market and the belt and road initiatives, the Chinese market will become too attractive to members of the international community. Over time the trade talks will become less and less significant to China and will allow China to negotiate at an even stronger position.

The clock is ticking…

 

The views do not necessarily reflect those of DotDotNews.

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