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U.S.-China Trade Talks Begin; Trump to Meet With China's Top Envoy Friday--4th Update

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10/10/2019 | 02:16pm EDT

By William Mauldin and Josh Zumbrun

WASHINGTON -- U.S-China trade talks kicked off on a positive note Thursday as President Trump said he would meet with a top envoy of Chinese President Xi Jinping and the two sides worked toward an accord aimed at preventing currency manipulation.

Prior to the talks beginning, the White House also green lighted the approval of licenses for American firms to do business with blacklisted Chinese telecom giant Huawei Technologies Co., a move seen as a bid to improve the environment for the talks.

Mr. Trump announced Thursday morning that he would meet Friday with Chinese Vice Premier Liu He at the White House.

"Big day of negotiations with China," Mr. Trump said in a tweet. "They want to make a deal, but do I?"

Despite the U.S. president's apparent uncertainty about reaching an accord, news of his meeting with the Chinese envoy helped lift U.S. stock markets already higher on hopes for a trade deal.

The talks, led by Mr. Liu and U.S. Trade Representative Robert Lighthizer, are conducted behind closed doors with limited transparency and only rare public briefings. The China side alone numbered about 50 officials.

Lower-level officials began laying the groundwork for the high-level talks earlier this week, and critics of the trade war hope Mr. Trump and Chinese President Xi Jinping can build on progress at a November summit of global leaders.

Business groups briefed by officials ahead of the talks say they see reason for optimism that the Chinese officials came with ideas to find common ground in the talks, which have been stalled since May, and that at least some U.S. officials are receptive.

"They come to Washington with the intention of making progress this week, " said Myron Brilliant, head of international affairs at the U.S. Chamber of Commerce.

International businesses hope the upbeat tone means a less of a chance that Mr. Trump will raise the tariff level on $250 billion in annual imports from China on Oct. 15 or will impose tariffs on $156 billion in consumer products from China on Dec. 15.

Yet that doesn't mean a comprehensive deal is coming soon. The Trump administration has increased pressure on China in key areas, including imposing sanctions this week targeting companies for alleged involvement in the mistreatment of Chinese Muslims in the country's northwest. Beijing has resumed buying some American agricultural products, but has balked at making deep structural changes in its economy and enforcing them with new laws, as demanded by the Trump administration through the tariff-led trade war.

Mr. Trump enjoys broad support in the idea of confronting China over its economic practices. But any deal could face criticism from Democrats and Republican China hawks if it doesn't address a half-dozen key issues ranging from improved intellectual-property protection to subsidies for Chinese companies. This week the outcry over an NBA general manager's support for Hong Kong demonstrations shows how citizens and governments mistrust each other on both sides.

Still, business groups and many Republicans are eager for Mr. Trump to notch wins in key areas, including currency.

Before talks broke down in May, U.S. and Chinese negotiators had agreed to a series of measures that American officials said would deter Beijing from manipulating its currency.

"There's even the possibility of a currency agreement this week," Mr. Brilliant said at a media briefing Thursday after speaking to U.S. officials.

Spokesmen for the Treasury Department didn't immediately respond to a request for comment on the currency negotiations.

U.S. officials have long had concerns about China's currency practices, with some arguing that China artificially lowered the value of its currency in order to make its exports less expensive and boost its manufacturers, at the expense of countries like the U.S. with stronger currencies, and thus relatively more expensive goods.

In August, after the talks had broken down, the U.S. formally designated China as a "currency manipulator," a move that was largely symbolic since the two sides were already engaged in tit-for-tat tariff escalation at that point.

The agreement that Treasury Secretary and Steven Mnuchin and other officials mostly finalized with Chinese negotiators in April was largely modeled after the currency chapter that the U.S. negotiated with Canada and Mexico in their efforts to rewrite the North American Free Trade Agreement.

The agreement would include commitments that neither country would devalue its currency, but China already makes numerous such commitments under international treaties -- such as its membership in the International Monetary Fund -- and in various G-20 communiqués that have been issued over the years. These commitments, however, have lacked an enforcement mechanism to hold countries to account.

Thus the strength of a currency agreement with China would depend on the enforcement mechanism of the overall trade deal, which has long been among the sticking points in the talks.

Perhaps the more meaningful step in a currency agreement, however, would be a requirement that China disclose its actions in the foreign exchange market. Beijing currently doesn't reveal the composition of its foreign-exchange reserves or its purchases in currency markets, which has sometimes made it difficult to assess whether Beijing is manipulating the yuan. If the purchases are disclosed, however, U.S. officials would have a better window into when China officials are taking direct actions to move its exchange rate.

Mr. Trump has railed against China's currency moves since the 2016 campaign season, but he has also noted some benefits, arguing this week that exchange rates are shifting the costs of U.S. tariffs to China.

"China has eaten the cost of those tariffs because they've devalued their currency and they've also pumped a lot of money into their system, " Mr. Trump said Monday.

--Alex Leary contributed to this article.

Write to William Mauldin at william.mauldin@wsj.com and Josh Zumbrun at Josh.Zumbrun@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.10% 7.0675 Delayed Quote.3.09%
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) 0.07% 7.0804 Delayed Quote.3.15%
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