Trump Says U.S. ‘Back on Track’ With China After Meeting Xi

(Bloomberg) --

President Donald Trump said the U.S. was “right back on track” with China after a high-stakes meeting with Xi Jinping on Saturday.

Trump called the meeting with Xi “excellent” and said it went better than expected. He mentioned that the U.S. would put out a statement at about 3:30 p.m. local time.

“We want to do something that will even it up with respect to trade,” Trump told Xi at the beginning of their meeting in Japan on the sidelines of the Group of 20 summit. “I think it’s something that’s actually very easy to do. I actually think that we were very close and then something happened where we slipped a little bit, and now we’re getting a little bit closer. But it would be historic.”

Xi opened the meeting with a reference to the ping-pong diplomacy in the 1970s that paved the way for formal diplomatic ties between the U.S. and China.

“China and the United States both benefit from cooperation and lose from confrontation,” Xi said in prepared remarks.

A temporary freeze on further U.S. tariffs, as well as Chinese retaliation, while talks get back under way was discussed by negotiators before the leaders met for lunch, according to people briefed on the talks who asked not to be identified.

After almost a year of trade war, the stakes couldn’t be much higher. A return to the negotiating table would end a six-week stalemate that’s unnerved companies and investors, and damp the threat of a further escalation. Failure to do so would likely upset financial markets already whipsawed by mounting risks to a slowing global expansion.

Trump earlier Saturday signaled the U.S. had made progress in trade discussions with China ahead of the lunch meeting in Japan, which comes amid growing hopes the two powers will hit the pause button in their trade war and resume the search for a longer-term peace.

Speaking with reporters Saturday, Trump said that he would be discussing the U.S. blacklisting of Huawei Technologies Co. as well as a broader trade deal. He also said the two leaders and their negotiators had made progress during preparatory discussions on Friday evening.

“A lot was accomplished actually last night,” Trump said prior to meeting Xi. “The relationship is very good with China. As to whether or not we can make a deal, time will tell, but the relationship itself is really great,” Trump said, adding that he and Xi continued to have “a very good friendship.”

Chiding Trump

Trump’s comments came after Xi spent much of the summit’s first day Friday promising to open up the Chinese economy, and chiding -- though not naming -- the U.S. for its attack on the global trading system.

In remarks to African leaders on Friday, Xi took a not-so-subtle swipe at Trump’s “America first” trade policy, warning against “bullying practices” and adding that “any attempt to put one’s own interests first and undermine others’ will not win any popularity.”

Any cease-fire would at least temporarily reduce fears that the world’s two largest economies are headed into a new cold war, though a broader conflict is viewed as increasingly inevitable in both Beijing and Washington.

Concern about the standoff has prompted investors to bet on central-bank easing, and pile into havens. Treasury yields have tumbled to their lowest level in years. The Japanese yen, a traditional beneficiary of flight to quality, has gained, while the U.S. dollar has slipped across the board, including against China’s yuan. Stocks have seesawed on each new twist in the trade tug-of-war.

In that fraught environment, even a return to negotiations won’t guarantee a deal. Since the talks collapsed on May 10, Trump has raised tariffs on $200 billion of Chinese goods to 25% from 10%. In recent days, he’s indicated that the next step could be a 10% tariff on all remaining imports from China -- some $300 billion-worth, from smartphones to children’s clothes.

5G Battle

Another big hurdle is last month’s U.S. blacklisting of Huawei on national security grounds, which threatens to cut off the Chinese giant’s access to American technology. His administration has been lobbying allies around the world not to buy Huawei equipment, which the U.S. says could be used for Chinese espionage.

Xi on Friday called out the U.S. over Huawei and said the G-20 should uphold the “completeness and vitality of global supply chains.” China insisted this week that Huawei must be removed from the blacklist under any deal.

Trump used to cite the reduction of America’s goods-trade deficit with China -- which reached a record $419 billion last year -- as his main aim. But his administration’s focus has shifted to limiting Chinese access to U.S. innovation. China’s government has responded with increasingly harsh rhetoric that underscores its readiness for a long battle.

Other disagreements that caused talks to break down include how to enshrine the Chinese reforms demanded by the U.S., over intellectual property theft and industrial subsidies, and when and how to lift the tariffs that Trump has come to view as his most powerful economic tool.

Despite a backlash from American businesses, the president remains convinced that tariffs have given him leverage over trading partners -- and that they’ve helped the U.S. economy while hurting China’s.

“I view tariffs differently than a lot of other people,’’ Trump told Fox Business Network in an interview ahead of his G-20 trip. “And by the way, since tariffs have been on, our market has gone through the roof, if you know what I’m talking about.’’

--With assistance from Benjamin Purvis, Jennifer Jacobs and Ryan Best.

To contact the reporters on this story: Shawn Donnan in Washington at sdonnan@bloomberg.net;Margaret Talev in Washington at mtalev@bloomberg.net;Peter Martin in Beijing at pmartin138@bloomberg.net

To contact the editors responsible for this story: Simon Kennedy at skennedy4@bloomberg.net, ;Daniel Ten Kate at dtenkate@bloomberg.net, Brendan Murray, Ben Holland

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