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The US and China are talking trade despite the Huawei CFO's arrest

Trade talks between the United States and China are moving forward even though Beijing is fuming over the ar...

Posted: Dec 11, 2018 5:54 PM
Updated: Dec 11, 2018 5:54 PM

Trade talks between the United States and China are moving forward even though Beijing is fuming over the arrest of a top Chinese tech executive.

China's top trade negotiator, Vice Premier Liu He, spoke on the phone Tuesday with US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer, according to a statement from the Chinese Commerce Ministry.

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The officials talked about "implementing the agreements" reached by US President Donald Trump and his Chinese counterpart, Xi Jinping, during their meeting in Buenos Aires earlier this month, the short statement said. They also discussed "timetables and road-maps about the next round of trade negotiations," it added.

A US Treasury Department spokesperson confirmed the conversation had taken place but declined to provide any details about what was discussed.

Trump tweeted on Tuesday about positive progress on the talks, teasing 'positive announcements.'

Bloomberg News reported Tuesday that the Chinese cabinet is considering a proposal to reduce tariffs on US-made cars to 15% from 40% -- a dramatic reduction that would nevertheless be higher than the zero promised by some top Trump officials. That would bring the United States in parity with all of China's other trading partners -- Beijing would effectively be lifting part of the retaliatory tariffs it imposed in July.

BMW and Daimler's stocks rose about 3% in Frankfurt. Volkswagen stock was up more than 4%. In New York, the Dow went up 350 points, or 1.4%, on hopes for progress on the US-China trade war.

Uncertainty over whether the two sides can maintain and build on the fragile trade truce to which Trump and Xi agreed in Argentina has fueled volatile trading in global markets this month. If the two economic superpowers are unable to reach a lasting deal within the 90-day deadline set by the two leaders, their damaging trade war could escalate further with the imposition of more tariffs on hundreds of billions of dollars of goods.

A new strain on their relationship emerged last week when Canada announced it had carried out a US request to arrest the chief financial officer of Huawei, one of China's top tech companies. The US government is seeking the extradition of the executive, Meng Wanzhou, over alleged violations of sanctions on Iran.

Beijing summoned the US and Canadian ambassadors over the weekend, warning of "serious consequences" if Meng, the daughter of Huawei's founder, isn't released soon. The Chinese company says it's not aware of any wrongdoing by Meng.

How badly does China want a deal?

The arrest has highlighted the intensifying clash between the world's top two economies over technology. Huawei is key to China's efforts to become a global tech powerhouse and lead the introduction of 5G wireless technology around the world.

But for the time being, neither government is letting the tensions over Meng's case infect their planned trade talks.

Lighthizer, who's leading the team of US negotiators, said Sunday on CBS' "Face The Nation" that the two issues are separate.

"It's entirely a criminal justice matter," he said of Meng's case. "It has nothing to do with anything I'm working on."

Some analysts predict Beijing will go along with that view for the time being if it means bringing an end to the damaging trade war, which has weighed on China's stock market, currency and consumer sentiment.

China's economy has already lost momentum this year because of government efforts to rein in financial risk. An escalating trade war would make the situation even worse.

"The Chinese seem likely to tolerate [Meng's arrest] if it means clinching a deal on trade," Julian Evans-Pritchard, a China expert at research firm Capital Economics, said in a note to investors on Friday.

"The bigger hurdle is that the thorny structural issues on trade and competition have yet to be addressed," he added. "Still, there are some grounds for optimism."

But other analysts have warned China could retaliate against American interests if Meng's extradition to the United States goes ahead.

"Beijing and Washington face technological and geopolitical fissures that may defy efforts to keep them separate from the trade talks," Eurasia Group analysts wrote in a commentary for CNN over the weekend.

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