The U.S. and China may be ready to stabilize trade relations, with a U.S. government delegation traveling to Beijing during the week of Jan. 7 to hold trade talks with Chinese officials.
Two people familiar with the matter told Bloomberg that Deputy U.S. Trade Representative Jeffrey Gerrish will lead the Trump administration’s team, and the U.S. team will also include Treasury Under Secretary for International Affairs David Malpass.
The U.S. didn’t respond to requests for comments, but China did confirm a meeting has been scheduled. Chinese Ministry of Commerce spokesman Gao Feng confirmed that talks will take place next month, although he didn’t provide a date for the meeting.
The stakes are high for U.S. and China trade relations to stabilize. The Trump administration launching the trade war — which added more than $200 billion worth of imports from China by the third quarter of 2018 — is considered a key factor in destabilizing oil prices this year. It’s also hurting China’s weakening auto sales, which is seeing its first decline in two decades.
China’s import tax on U.S. liquefied natural gas also caused market upheaval in China’s growing LNG market. It’s considered to have thrown a wrench into the market, giving sellers in China an opportunity to hike prices.
The two countries have held face-to-face discussions to reconcile the trade war. President Donald Trump met with China’s Xi Jinping and agreed on a 90-day truce in Argentina. Treasury Secretary Steven Mnuchin said last week that U.S. and Chinese representatives have held phone meetings since then.
Tesla’s CEO Elon Musk and other automotive executives were pleased to see China reduce tariffs to 15 percent from 40 percent after that meeting. Tesla was able to lower prices for its Model S, Model X, and Model 3, which are scheduled to be delivered to customers early next year. BMW AG and Daimler AG were able to cut prices on their U.S.-made luxury vehicles, bringing prices down to the level there were at before the extra duty was added last July.
Tesla believes the China market to be integral in its strategy of becoming a thriving global automaker — and getting through a rough year coming from the high cost of mass producing the Model 3, and from Musk’s comments about possibly taking the company private. The company this week registered a financial leasing company in China, according to a local business registration filing.
The electric carmaker wants to speed up its presence in the world’s largest electric vehicle market and sees China vital to competing with BMW and Daimler. Tesla has opened a wholly-owned financial leasing unit in Shanghai’s free trade zone with registered capital of $30 million, according to China’s National Enterprise Information Publicity System.
Chinese officials and auto executives have been troubled by new vehicle sales dropping in the country. The trade war has been part of the decline, along with a weakening economy in China, keeping potential buyers away from auto showrooms. It’s the first annual sales decline in at least two decades, and auto executives — both Chinese and from global automakers in joint venture partnerships with Chinese makers — want to see the market come back with vehicles sales returning to what they’d been before.
Trade tensions are starting to cool. China this week announced a third round of tariff cuts, which will lower import taxes on more than 700 goods from Jan. 1. It’s part of its efforts to open up the economy and lower prices for consumers to fuel market demand.
China wants to see Trump back off his aggressive stance on China imports, and implement U.S. tariff reductions. The costs have been high for the U.S. in taking this aggressive stance.
The Center for Automotive Research earlier this year released a report warning that auto sales could plunge up to two million vehicles a year over the huge tariff increase launched by Trump. That could mean a loss of about 715,000 American jobs and a $62 billion hit on U.S. GDP.
In September, Ford CEO James Hackett said at a Bloomberg conference in New York that steel and aluminum tariffs imposed by the Trump administration had cost the company about $1 billion. On Nov. 27, Trump publicly chastised GM CEO Mary Barra over her decision to close four plants in the US because of sagging demand for sedans (that includes ending production of the plug-in hybrid Chevrolet Volt).
That came from Trump’s emphasis on keeping U.S. manufacturing alive and well, and keeping Americans working in the plants. The reality is that GM and other automakers have been investing heavily in global production and sales while staying as profitable as possible. The trade war with China hurts those strategies as China remains the largest auto market by far in gasoline-powered and electric vehicles.
By Jon LeSage for Oilprice.com
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