REUTERS/Jonathan Ernst

The G20 meeting is over, leaving much to digest and decisions to be made. In this post we will report on what happened and what we believe will happen going forward. Most importantly, we will suggest what international businesses should be doing in response to all this.

 

What Happened at the Trump-Xi meeting at G20?

The below image from Bloomberg, U.S.-China Trade Truce: A Side-by-Side Comparison of Statements, nicely sums things up.

.relates to U.S.-China Trade Truce: A Side-by-Side Comparison of Statements

Let’s unpack this a bit, statement by statement.

1. No new tariffs. For now. This means exactly what it says, and quite a bit more. This means that so long as things are moving forward between the United States and China and so long as President Trump doesn’t do something imperiously, there likely will not be new tariffs imposed on Chinese goods coming into the United States for a while. Or, if past history is any predictor of future performance (and we all know that it is), this merely means there will be no new tariffs until there are. Let us not forget that when President Trump met with President Xi in Argentina, President Trump made this same statement and yet he imposed new tariffs by tweet a few months later.

Reality.  The 25% tariffs that were on tap to start very soon almost certainly will not start very soon, but if there is no trade deal between the United States and China relatively soon (whatever that means), there will almost certainly be new tariffs down the road. This is but a temporary truce.China is insisting on a “balanced” trade deal and because of China’s long history of IP and market opening transgressions the United States has made clear there will be no such deal. See China wants a “balanced” trade deal at summit, but the US isn’t interested. The U.S. and China were not able to reach a deal in the last year and unless the intellectual property and market opening issues disappear or get resolved, the odds of a trade deal are slim.

In A China-America trade truce could enshrine a global economic shift, the New York Times had this to say:

The United States would keep in place broad tariffs on Chinese goods for months or perhaps years to come. Global companies would almost certainly respond by continuing to shift at least the final stages of their supply chains out of China.” As long as the threat is out there, there are risks in depending on these long supply chains,” said Jacques deLisle, director of the Center for the Study of Contemporary China at the University of Pennsylvania. “Businesses don’t like uncertainty, and this prolongs the uncertainty.”

Action Plan. If you are making products in China for sale to the United States or sourcing products from China for sale to the United States, this should not give you any comfort at all and you should either continue looking for alternative countries or — if feasible — start looking for alternative countries. China is high risk right now and it will likely be high risk for at least the next decade, trade deal or no trade deal. We still have the 25% tariffs on $250 billion in Chinese goods and the threat of more tariffs at any time. See Has Sourcing Product From China Become TOO Risky? See also The US-China Cold War Starts Now: What You Must do to Prepare. Tariffs or no tariffs, you should expect a massive increase in duties (up to and maybe even beyond 200%) to be imposed (sometimes retroactively!) on Chinese products. See Importing From China (Directly OR Indirectly) has Big RETROACTIVE Risks.

2.  Agreed to restart talks where they left off. Or not. It is not clear whether there was agreement on this or not, but it hardly matters where talks begin. What matters is whether they continue and end in a resolution or not.

Reality. There will be a deal or there will be no deal. That is what matters.

Action Plan. See above.

3. Negotiations must be equal, reflect mutual respect and address respective concerns. I don’t mean to trivialize this, but a statement like this is really just for internal consumption in China.

Reality. There will be a deal or there will be no deal. That is what matters.

Action Plan. See above.

4. Trump threatens future tariffs if no deal is made. This is key.

Reality. How long will Trump wait for a deal before he imposes new tariffs? I predict 10% tariffs within 3-5 months and another 15% on top of that within 1-2 months of that. It is not clear to me what impact the 2020 elections will have on this.

Action Plan. See above.

5. Trump says China will buy a “tremendous” amount of food and agriculture products. U.S. will give China a list of things to buy. Okay.

Reality. China will probably make a few big soybean and other food purchases from the United States to a lot of fanfare, but future orders will likely depend on trade war progress. What about China’s tariffs on U.S. food and agricultural products? No indication those will be removed.

Action Plan. Try to sell what you can.

 

What about Huawei?  President Trump also vaguely mentioned that he would now “as a favor” allow Huawei to make purchases from the United States so long as those purchases do not impact national security. It is not at all clear what this means and because of that it is not at all clear what impact this might have on the trade war, if any. If Huawei is in fact a national security threat, it strikes me as weird for anything to really change here, especially since the U.S. government has been warning other countries about the Huawei threat. If the United States does flip on this issue in exchange for a few Chinese orders of U.S. soybeans, U.S. credibility around the world likely will take another massive hit. In addition to this and per the New York Times: “leaders from both major American parties have indicated that the United States could continue to take a tough line on China no matter who is in the White House. The attitudes toward Huawei, in particular, show an appetite on both sides of the aisle for taking a tough line.”

What does the United States-China future hold? As our regular readers know, we are unrelentingly negative regarding the future for the US-China relationship. It is not at all clear either China or the United States care about their relationship for reasons beyond short term economic stability and large factions in both countries would prefer an immediate decoupling. See Trump’s Offer Of U.S. Tech Lifeline For Huawei Prompts Fierce Political Backlash and Does China WANT a Second Decoupling? The Chinese Texts Say That it Does.

 

What should you do? If you are already in China or selling to China, you almost certainly should not leave. See Why NOW Is a Good Time to Double Down on Doing Business in China. You should though make double-sure that you and your company are in full compliance with Chinese law, especially as related to taxes and employment and visas. See Want to Keep Your Business in China? Do These Things NOW. See also, Foreign Companies in China: What We are Seeing and Hearing NOW and Foreign Companies in China: What We are Seeing and Hearing NOW, Part 2. 

If you are having your products made in China and sold to the United States or sourced in China and sold to the United States, you really do need to be considering other options, a safety valve, for diversification, or as a replacement. See US-China Tariff Updates: What You Can (and Should NOT) do NOW

Most importantly, keep your eyes and your eyes wide open.

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.