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US and China to start new talks on tariff truce, easing the path for Trump-Xi Meeting

The top U.S. economic officials and Chinese economic officials are scheduled to resume their talks on Monday in Stockholm to address long-standing economic disputes that have been at the heart of the trade war between two of the world's largest economies. They hope to extend the truce for three months while preventing tariffs from rising sharply.

China faces a deadline of August 12 to reach a lasting tariff agreement with the administration of President Donald Trump. Beijing and Washington had reached preliminary agreements in May and early June to put an end to weeks of escalating tariffs, including a ban on rare earth minerals.

If there is no agreement, the global supply chain could be thrown into turmoil by U.S. tariffs returning to triple-digit rates that would amount a bilateral embargo.

The Stockholm talks follow Trump's largest trade deal to date with the European Union, which was announced on Sunday. It included a 15% tariff for most EU exports into the U.S. including automobiles. The EU will also invest $600 billion in U.S. energy and buy $750 billion of American energy over the next few years.

Trade analysts say that a similar breakthrough in the U.S. China talks is unlikely, but a 90-day extension to a tariff- and export-control truce reached in mid-May seems likely.

A longer extension would help prevent further escalation, and allow for planning a possible meeting between Trump and Chinese president Xi Jinping at the end of October or beginning of November.

A U.S. Treasury spokeswoman declined to comment on a South China Morning Post article citing unnamed sources who said that the two sides will refrain from introducing any new tariffs for 90 days or taking other actions which could escalate the trade conflict.

Trump's administration will soon impose new tariffs on China, including those on semiconductors. Pharmacies, ship to shore cranes, and other products.

"We are very close to making a deal with China." "We're very close to a deal with China," Trump said on Sunday, before European Commission President Ursula von der Leyen signed the tariff agreement.

DEEPER ISSUES

The previous U.S.-China talks held in Geneva and London between May and June were aimed at reducing the U.S. and Chinese tariffs from triple digit levels, and restoring flow of Nvidia H20 AI chips as well as other goods that had been halted in the United States.

The talks so far have not covered broader economic topics. The U.S. has complained that China's export-driven, state-led model floods the world's markets with cheap products, while Beijing complains that U.S. export controls on technology goods are meant to stunt Chinese economic growth.

"Geneva and London really were just trying to get their relationship back on track, so that at some point they could actually negotiate about the questions which are the source of the initial disagreement between the two countries," said Scott Kennedy. He is an expert in China economics at the Center for Strategic and International Studies, Washington.

Kennedy stated that "I would be surprised if some of these things were harvested early, but an extension of 90 more days of the ceasefire seems the most likely result."

U.S. Treasury secretary Scott Bessent already announced a deadline extension. He also said that he wanted China to rebalance their economy from exports towards more domestic consumption, a goal of U.S. policymakers for decades.

Analysts believe that the U.S. and China negotiations will take more time than other Asian nations. China's hold on the world market for rare earth magnets and minerals, which are used in everything from car windshield wiper motors to military hardware, has proven to be a powerful leverage point against U.S. industry.

TRUMP-XI MEETING?

The background to the discussions is speculation regarding a possible Trump-Xi meeting in late October.

Trump said that he would decide on his historic trip to China soon, but a new flare up of tariffs and export control measures could derail the planning.

Sun Chenghao is a fellow with the Center for International Security and Strategy at Tsinghua's Center for International Security and Strategy, Beijing. He said the Trump-Xi Summit would give the U.S. an opportunity to lower its 20% tariffs against Chinese products related to fentanyl. He said that in exchange for the Chinese commitment to purchase more U.S. farm goods and other goods by 2020, they could fulfill their 2020 pledge.

Sun stated that the future summit of heads of state is a very positive prospect for the negotiations, as everyone wants to achieve an agreement or pave a way ahead.

Analysts said that China would likely ask for a further easing of U.S. export controls on high-tech products and a reduction in the multi-layered U.S. duties totaling 55 percent. Beijing argues that these purchases will help reduce the U.S.-China trade deficit, which is expected to reach $295.5 billion by 2024. (Reporting and editing by Diane Craft; David Lawder)

(source: Reuters)