China, U.S. Divided on Tariff Removal, Purchase Plans, Liu Says

(Bloomberg) -- There are three main points of contention between China and the U.S., Beijing’s chief negotiator told a group of reporters in Washington after talks ended, laying bare for the first time where China sees the fault-lines in the negotiations.

The talks ended Friday without any progress toward an agreement. The U.S. imposed higher tariffs earlier in the day on $200 billion worth of imports and set a one-month deadline for a deal, threatening to tariff the rest of goods it buys from China.

China, U.S. Divided on Tariff Removal, Purchase Plans, Liu Says

According to Vice Premier Liu He, China’s stance on the three main points of difference is:

  • The U.S. must remove all the additional tariffs imposed on China
  • The targets set by the U.S. for Chinese purchases should be in line with real demand
  • The text of a deal should be "balanced" to ensure the "dignity" of both nations

"We’re still discussing whether tariffs should be removed or not," Liu said, according to the text of the interview, carried by Hong Kong’s Phoenix Television. "The tariffs are the starting point of the bilateral trade dispute, and they must all be removed if an agreement is to be made," he said.

"This isn’t merely an economic issue. It has to do with many other issues."

Liu also said the two sides now differ on how much U.S. goods China should purchase, using language that implies the U.S. is trying to renegotiate a bigger amount. According to Liu, Presidents Xi Jinping and Donald Trump had achieved an initial consensus "on a number" when they met in Argentina. That "is a very serious issue and can’t be changed easily."

The amount of purchases by China should be “in line with reality,” according to a commentary by state news agency Xinhua Saturday. Xinhua also participated in the interview.

The “balance” of the text is an issue, Xinhua said, adding that China will stay patient and be ready to deal with all kinds of risks. “An equal footing” would be the underlying basis for the final agreement, Xinhua said.

The text "must be balanced" for the dignity of a country, Liu said, repeating China and the U.S. are "trying to meet halfway" despite different views on some crucial issues.

The other main points from Liu’s interview, according to Phoenix:

  • "We have not reneged. We just have some differences on how to draft certain text. We hope to solve this problem. We think there is no need to overact on this issue."
  • "As a country, if the U.S. imposes tariffs, we are forced to react. We hope the U.S. can be restrained, and we will also be restrained," he said, adding that he hoped the trade war would not be escalated endlessly.
  • "The purpose decides everything. What eventually do you want? For China, we want a good cooperation agreement under the precondition of equality and dignity. We hope the U.S. can understand this."
  • There are multiple factors causing the trade imbalance between China and the U.S., which should be analyzed "scientifically."
  • Technology transfer that happens at the early stage of cooperation is "voluntary behavior" from both sides, and it’s hard to say it’s being forced.
  • It is "absolutely unacceptable" for one country to accuse another of stealing intellectual property. There might be specific cases, but those cases should be judged individually.
  • The two sides still have very strong willingness to make a deal, according to Liu
  • "We need to work step by step, like in a marathon. The last phase is the most difficult. We need to hold on at this moment, and get through the darkest night before the dawn, so I hope we can get understanding and support from all parties," Liu said while smiling.
  • China’s economy "has entered an rising period this year" with a very optimistic outlook from a long-term perspective, Liu said. In the nearer term, China has an enormous domestic market, product competitiveness is improving, and it has enough policy tools and room for fiscal and monetary policy, he said.

©2019 Bloomberg L.P.

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