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China Emerges With Wins From U.S. Trade Truce

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10/12/2019 | 02:48pm EDT

By Chao Deng and Lingling Wei

BEIJING -- China is emerging with wins in this week's trade talks, some analysts say, with the U.S. shelving new tariffs against Beijing while leaving many demands to be worked out later in return for an assurance of increased agriculture purchases.

The two countries took an initial step Friday to cement a trade agreement that had been derailed for months. President Trump said the U.S. would call off planned tariff increases on Chinese goods next week while Beijing would buy $40 billion to $50 billion worth of American agricultural products -- which China hasn't publicly confirmed.

A bigger trade deal will come over time in three stages, according to Mr. Trump, with more divisive issues to be addressed later. These include Chinese practices that the U.S. alleges but Beijing denies, such as forced transfers of U.S. technology to its economic rival.

Mr. Trump said that matter would largely be addressed in the second round of talks, while analysts think other issues like China's subsidies to state-owned firms would fall on the later side too.

For now the truce opens an opportunity for Beijing to kick concessions that it doesn't want to make, down the road. Whether those hard issues ever get resolved is a question.

"If you're China, you're pretty happy with the outcome," Arthur R. Kroeber, founder of Beijing-based consultancy Gavekal Dragonomics, said of the latest trade talks. "China's negotiation position has always been, the longer you can extend the talks the better."

The Chinese side hasn't provided details of the negotiations, including that it will buy up to $50 billion of U.S. farm products, the level Trump's trade team says Beijing will reach yearly. If achieved annually, that would be substantially above levels near $21 billion that prevailed in 2017 before the trade war and then were subsequently reduced by China as tensions mounted.

Mr. Trump touted the purchases in a tweet Saturday.

"The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country," he said. "In fact, there is a question as to whether or not this much product can be produced? Our farmers will figure it out. Thank you China!"

People with knowledge of China's strategy say Beijing officials still insist that agriculture purchases must align with the real needs of Chinese state-owned enterprises and comply with World Trade Organization standards which limit market-distorting practices.

Beijing's position leaves open the possibility for disagreement between the two sides over the size and timing of Chinese purchases, and whether the $50 billion number is an aspiration or a firm target. China's state media and Ministry of Commerce made no comments on agricultural purchase commitments after the meetings.

Beijing slowed down President Trump from imposing additional tariffs, though it failed to push U.S. negotiators to remove any tariffs already in place.

U.S. officials had planned a tariff increase next week to 30% from 25% on $250 billion in Chinese goods. U.S. Trade Representative Robert Lighthizer said the U.S. hasn't made a decision on the planned December tariffs for $156 billion in Chinese goods. Beijing will likely argue hard for the U.S. to remove that round, too.

President Trump said he and Chinese President Xi Jinping could meet and sign the first phase of a deal in mid-November, at the Asia-Pacific Economic Cooperation summit in Chile and it would be difficult to imagine the U.S. escalating tariffs thereafter if an agreement is reached.

On another front, Mr. Trump played down democracy protests in Hong Kong, claiming it was drawing fewer protesters and that the problem would solve itself. This was another win for Beijing, which has been worried about Washington bringing in nontrade related issues into the talks, according to analysts.

Some businesses are cheering the truce as good news, tired of a prolonged dispute weighing on the global economy and investment prospects.

Beijing's strategy has evolved over the course of the dispute. China initially wanted to resolve matters quickly as tensions ratcheted up last year. Gathering gloom in the Chinese economy pushed Mr. Xi to the negotiating table. He met with Mr. Trump in Argentina last December, to call their first truce and set up high-level trade negotiations.

The two sides looked to be closing their gaps but talks broke down in May when the U.S. side accused China of reneging on a 150-page draft agreement. As President Trump began laying on the tariffs, Beijing adopted a tit-for-tat strategy.

Beijing eventually ran out of ammunition on more U.S. imports to hit. Officials switched strategies, according to people with knowledge of the matter. They began accepting that the dispute would be protracted and focused on not provoking President Trump further.

In May, Washington put Chinese telecom firm Huawei Technologies Co. on its exports black list, and could expand its ban to other Chinese firms. It did so earlier this month, targeting 28 Chinese firms in video-surveillance and facial-recognition.

The Wall Street Journal reported in September that Beijing sought to narrow the scope of trade discussions, aiming to put national security and other difficult issues on a separate track.

In recent meetings with U.S. business representatives, Chinese chief trade negotiator and Vice Premier Liu He indicated that Beijing remains hopeful of an eventual trade deal with the U.S. but that it wouldn't be reached quickly, according to people with knowledge of the matter. Meantime, Mr. Trump's focus on the coming election could increase pressure on him to deliver news to lift markets.

In the latest round of two-day trade talks, both sides focused on what they could harvest early. On the first day, Chinese officials focused on getting the U.S. to remove tariffs coming up as opposed to ones already in place, according to a person briefed on the matter.

Beijing's plan now is to keep talking to Washington officials, while avoiding meeting all of their demands, according to Chinese officials.

Chinese state media has been muted compared with President Trump's portrayal of the truce as a major step toward ending the trade war. Beijing hasn't reported that the U.S. will put off tariffs, instead saying the two sides made progress in a range of areas and were moving to solve the problem.

"China's position of safeguarding the nation's core interests and the fundamental interests of its people cannot be shaken," said Communist Party mouthpiece People's Daily on Friday. "On issues of principle, it is impossible to engage and impossible to solve the problem by exerting pressure on the Chinese side."

Write to Chao Deng at Chao.Deng@wsj.com and Lingling Wei at lingling.wei@wsj.com

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