U.S.-China officials discuss trade; Mnuchin eyes possible in-person talks

FILE PHOTO: Treasury Secretary Steven Mnuchin testifies before the House Financial Services Committee hearing on "The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System" in Washington, U.S., May 22, 2019. REUTERS/Mary F. Calvert

CHANTILLY, France/WASHINGTON (Reuters) – U.S. and Chinese officials spoke by telephone on Thursday as the world’s two largest economies seek to end a year-long trade war, with U.S. Treasury Secretary Steven Mnuchin suggesting in-person talks could follow.

Mnuchin and U.S. Trade Representative Robert Lighthizer spoke with their Chinese counterparts over the phone, Lighthizer’s office said on Thursday, following earlier comments by the Treasury secretary in an interview on the sidelines of the G7 meeting in Chantilly, France.

The United States and China have been embroiled in a tit-for-tat tariff battle since July 2018, as Washington presses Beijing to address what it sees as decades of unfair and illegal trading practices.

China has countered that any deal needs to be fair and equitable, leaving the two sides apparently still far from an agreement to end the back-and-forth that has roiled global supply chains and upended financial markets.

“Right now we’re having principal-level calls and to the extent that it makes sense for us to set up in-person meetings, I would anticipate that we would be doing that,” Mnuchin told Reuters.

Asked if Thursday’s call could lead to a face-to-face meeting, Mnuchin said: “It’s possible, but I’m not going to speculate on the outcome.”

Lighthizer’s office later confirmed that the conversation took place as scheduled, but gave no details.

China’s foreign ministry said on Friday the two sides had discussed ways to implement the consensus reached by the two countries’ presidents, but gave no other details.

Separately, Su Ge, former president of the China Institute of International Studies, a think tank affiliated with China’s Foreign Ministry, said he expected more formal discussions to resume this month.

“These are difficult questions … but at least they agreed to let the two negotiation teams to restart their work, so we will keep our fingers crossed,” he said.

William Lee, chief economist for the Milken Institute, said tensions were simmering, with neither China nor the United States appearing ready to budge on critical issues.

“That high level of trade uncertainty is causing manufacturing firms to be reticent to make investments. That high degree of uncertainty is a drag on U.S. growth,” he said. “The real issue is that China wants respect. China wants a face-saving way of coming to the table.”

TARIFFS AND PROMISES

Global stocks were rattled this week after U.S. President Donald Trump reiterated threats to impose further tariffs on Chinese imports. Signs that the trade dispute was starting to take a toll on corporate earnings further unnerved investors, sending stocks lower on Thursday.

“We have a long way to go as far as tariffs, where China is concerned, if we want. We have another $325 billion that we can put a tariff on if we want,” Trump said at a cabinet meeting on Tuesday.

Trump and Chinese President Xi Jinping agreed during a Group of 20 nations summit in Japan last month to resume discussions, easing fears of escalation after talks broke down in early May. At the time of the G20, Trump agreed to suspend a new round of tariffs on $300 billion worth of imported Chinese consumer goods while the two sides resumed negotiations.

“What they did was not appropriate,” Trump said Tuesday. “They are supposed to be buying farm products. Let’s see whether or not they do.”

U.S. government data published on Thursday showed China last week made its largest purchase of U.S. sorghum since April. Sorghum was one of the first casualties of the trade war, which has slowed exports of soybeans and pork to China.

Asked about the role of Huawei Technologies Co Ltd, which the administration has blacklisted over national security concerns, Mnuchin said on Thursday that allowing any U.S. sales to the Chinese telecoms equipment company was an issue independent from the trade talks.

After meeting with Xi at the G20, Trump said American firms could sell products to Huawei. Earlier this month, Commerce Secretary Wilbur Ross said licenses would be issued where there is no threat to national security.

Reuters reported on Sunday that the United States may approve licenses for companies to restart new sales to Huawei in as little as two weeks, according to a senior U.S. official.

Mnuchin denied a Wall Street Journal report last week that the Treasury chief was urging U.S. suppliers to seek exemptions to sell to Huawei, saying he talks to corporate executives about many issues, including trade.

“My participation in this is only informational. I’ve never encouraged companies one way or the other to do things.”

The Wall Street Journal reported this week that discussions were at a standstill as Washington weighs limits over business with Huawei.

Derek Scissors, a scholar at the American Enterprise Institute think tank who has advised the White House on technology issues, said he expected further relaxations on Huawei to be part of any U.S.-China trade deal.

“The treatment of Huawei has been a circus,” he told a panel hosted by the Brookings Institution. “If we have a deal, Huawei will absolutely be part of it because the president doesn’t care … about technology competition.”

He said Trump was more focused on getting a trade deal and increasing access for U.S. farmers to Chinese markets.

(Reporting by David Lawder in Chantilly, France, Susan Heavey and Andrea Shalal in Washington and Koh Gui Qing in New York; Additional reporting by Chris Prentice in New York and Michael Martina in Beijing; Editing by Chizu Nomiyama and Peter Cooney)

Kudlow says U.S. expects China to start purchasing crops very soon

FILE PHOTO: White House chief economic advisor Larry Kudlow speaks with reporters on the driveway outside the West Wing of the White House in Washington, U.S. June 27, 2019. REUTERS/Yuri Gripas

WASHINGTON (Reuters) – White House economic adviser Larry Kudlow said on Thursday the United States expects China to start purchasing crops and U.S. agricultural products soon and noted that trade talks between the two countries are ongoing.

The United States and China agreed last month to restart trade talks that stalled in May. President Donald Trump agreed not to impose new tariffs and U.S. officials said China agreed to make agricultural purchases, but those have not yet materialized.

(Reporting by Jeff Mason; Editing by Chizu Nomiyama)

U.S., China to relaunch talks with little changed since deal fell apart

By David Lawder and Chris Prentice

WASHINGTON/NEW YORK (Reuters) – The United States and China are set to relaunch trade talks this week after a two-month hiatus, but a year after their trade war began there is little sign their differences have narrowed.

After meeting with Chinese President Xi Jinping in Japan just in late June, U.S. President Donald Trump agreed to suspend a new round of tariffs on $300 billion worth of imported Chinese consumer goods while the two sides resumed negotiations.

Trump said then that China would restart large purchases of U.S. agricultural commodities, and the United States would ease some export restrictions on Chinese telecom equipment giant Huawei Technologies.

But sources familiar with the talks and China trade watchers in Washington say the summit did little to clear the path for top negotiators to resolve an impasse that caused trade deal talks to break down in early May.

A U.S. official said last week the discussions were expected to resume with a phone call between U.S. Trade Representative Robert Lighthizer, Chinese Vice Premier Liu He and Treasury Secretary Steven Mnuchin.

A USTR spokesman said the call was expected this week, but gave no further details.

The United States is demanding that China make sweeping policy changes to better protect American intellectual property, end the forced transfer and theft of trade secrets and curb massive state industrial subsidies. At stake, U.S. officials say, is dominance of the high-tech industries of the future, from artificial intelligence to aerospace.

“We’ve had a change in atmospherics,” said Derek Scissors, a China expert at the American Enterprise Institute, a business-oriented Washington think tank. “While this is great for markets, the administration has not said one specific thing about how we’re unstuck.”

Scissors, who has at times consulted with Trump administration officials, said that both sides got what they wanted out of the summit — a lowering of the temperature and the avoidance of new tariffs that would have been painful for both sides.

“The pressure for one side to give into the other is diffused right now. I expect this to drag out for months,” Scissors added.

NO FIRM COMMITMENTS

Washington and Beijing appear to have different ideas of what the two leaders agreed in Osaka.

Three sources familiar with the state of negotiations say that the Chinese side did not make firm commitments to immediately purchase agricultural commodities.

One of the sources said Trump raised the issue of agricultural purchases twice during the meeting, but Xi only agreed to consider purchases in the context of a broader final agreement.

Other than a small purchase of American rice by a private Chinese firm, no purchases have materialized. Chinese officials and state media accounts in the past week have emphasized that any deal, including agricultural purchases, is dependent on removal of U.S. tariffs.

“The Chinese have been clear they didn’t promise anything,” said one source familiar with the talks.

“The idea they would give up their main leverage before getting anything doesn’t make sense. I could see them buying some pork and buying some soybeans, but it’s still going to be pennies.”

Trump administration officials have also downplayed the extent of pledges to allow Huawei to purchase U.S. technology products, with White House trade adviser Peter Navarro saying that only “lower-tech” U.S. semiconductors could be made available for sale to the company..

Reuters reported last week that the Commerce Department’s export control enforcement staff was told to continue to treat Huawei as a blacklisted entity as the department considers requests for licenses to U.S. firms to sell products and services to Huawei

Chinese officials point out that they only got the United States to concede on Huawei at the Osaka talks, rather than on their other demand, which was removing the existing tariffs.

So the focus on the upcoming talks will be the scrapping on the tariffs, they say.

A second source said that U.S. tariffs on $250 billion worth of Chinese goods and Chinese tariffs on $160 billion worth of U.S. goods could wind up being “the new normal.”

One Chinese official familiar with the situation said that trade talks would be re-started very quickly, but that there was a “fairly large gap” in the core demands of both countries and it would be a challenge to reach consensus on the toughest issues.

“The negotiating environment is even more severe,” the official said.

Another official said China remained concerned about the presence of hawks in the U.S. team, such as Trump advisor Peter Navarro.

“There are bullies there,” the official said.

The officials spoke to Reuters on condition of anonymity.

China’s foreign ministry cited Xi as telling Trump at Osaka that “on issues concerning China’s sovereignty and dignity, China must safeguard its core interests”.

A senior Beijing-based Asia diplomat said there would be pressure on China’s leadership not to give in to the United States and for any outcomes to seen as equal and balanced.

“A trade deal cannot be portrayed as a victory for the United States,” the diplomat said, citing conversations with Chinese officials.

WHICH TEXT?

There has been no indication the two sides will resume negotiations using a text that had been largely agreed before China backtracked on commitments in early May, prompting Trump to proceed with a long-threatened tariff hike to 25 percent on a $200 billion list of Chinese imports.

Beijing had cut out of that text commitments to make changes to its laws reflecting reform pledges, arguing that this would violate its national sovereignty.

Lighthizer has insisted on legal changes to make it more likely that Chinese reform pledges will be carried out.

Finding a way around this issue is paramount for talks. Beyond that, there are many other difficult issues to resolve, including the structure of an enforcement mechanism designed to hold the two sides to their pledges.

U.S. demands for curbs to provincial and local subsidies for Chinese state companies, access to China’s cloud computing market, agricultural biotech approvals and the ultimate size of China’s purchases of agricultural products are all divisive issues for the two sides.

Claire Reade, a former China trade negotiator at USTR who is now a Washington-based trade lawyer with the firm Arnold and Porter, said there was room on both sides to get a deal.

“It’s a question of political will and there are ways to maneuver around the current red flags that have been put in the ground,” Reade said. “Both President Xi and President Trump have to come out of this saying they stood strong, and they in-effect got a win.”

One way for China to avoid the appearance of giving in to U.S. demands is to take some legal steps on key issues before the deal is agreed. That way they can say they’re doing it on their own terms, she added.

(Additional reporting by Ben Blanchard in Beijing and Andrea Shalal in Washington; Editing by Simon Webb and Alistair Bell)

Trump officials say U.S.-China trade talks to resume next week

Workers load goods for export onto a crane at a port in Lianyungang, Jiangsu province, China June 7, 2019. Picture taken June 7, 2019. REUTERS/Stringer

By Jeff Mason

WASHINGTON (Reuters) – Top representatives of the United States and China are organizing a resumption of talks for next week to try to resolve a year-long trade war between the world’s two largest economies, Trump administration officials said on Wednesday.

“Those talks will continue in earnest this coming week,” White House Economic Adviser Larry Kudlow told reporters in a briefing.

An official from the Office of the U.S. Trade Representative said later that the two sides were in the process of scheduling a principal-level phone call with Chinese officials for next week.

The principal negotiators on the U.S. side are U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, while China’s top negotiator is Vice Premier Liu He.

The two sides have been in communication by telephone since last weekend, when U.S. President Donald Trump and Chinese President Xi Jinping agreed to relaunch talks that had stalled in May.

Kudlow was unclear about the timeline for relaunching face-to-face talks, saying that these would begin “soon” and that an announcement would be forthcoming.

“I don’t know precisely when. They’re on the phone. They’re going to be on the phone this coming week and they’ll be scheduling face-to-face meetings,” he said.

Talks between the two sides broke down in May after U.S. officials accused China of pulling back from commitments it had made previously in the text of an agreement that negotiators said was nearly finished.

The United States accuses China of allowing intellectual property theft and forcing U.S. companies to share their technology with Chinese counterparts in order to do business in China. It wants China to change its laws on those and other issues.

China denies such practices and is reluctant to make sweeping legal changes.

Both countries have levied tariffs on the other, but Trump made two major concessions at the meeting with Xi to get talks started again: he agreed not to put tariffs on some $300 billion in additional Chinese imports and to loosen restrictions on Chinese technology company Huawei.

China welcomed the U.S. decision not to put new tariffs on Chinese goods, commerce ministry spokesman Gao Feng told a regular media briefing on Thursday, but added the removal of existing U.S. tariffs was essential for a trade deal.

“The U.S. move to unilaterally increase tariffs on Chinese imports started the Sino-U.S. economic and trade frictions. If both sides could reach a deal, those tariffs must be completely removed,” said Gao.

The United States has 25% tariffs on $250 billion of Chinese goods now ranging from semi-conductors to furniture.

“We’ve been accommodative. We will not lift tariffs during the talks,” Kudlow said. “We are hoping that China will toe its end of it by purchasing a good many of American imports.”

Gao said China hoped the United States would follow through on Trump’s promise to ease restrictions on telecommunications giant Huawei.

Trump surprised markets on Saturday with an announcement that U.S. companies would be allowed to sell products to Huawei, which was placed on a so-called Entity List in May over national security concerns.

But industry and government officials are uncertain what the new policy will be.

The U.S. Commerce Department is reviewing license requests from U.S. companies seeking to export products to Huawei “under the highest national security scrutiny”.

(Reporting by Jeff Mason and David Lawder in Washington; Additional reporting by Stella Qiu; Editing by James Dalgleish and Lisa Shumaker)

Explainer: What extra U.S. farm products could China buy?

FILE PHOTO: Corn is loaded onto a truck as a silo is emptied at a farm in Tiskilwa, Illinois, U.S., July 6, 2018. REUTERS/Daniel Acker/File Photo

BEIJING (Reuters) – China has agreed to make unspecified new purchases of farm products from the United States, President Donald Trump said after meeting his Chinese counterpart Xi Jinping in Japan.

China was the top buyer on average of U.S. agriculture exports from 2010 to 2017, making purchases worth $21.6 billion a year, U.S. Department of Agriculture (USDA) showed.

While investors await details of the agreement and confirmation from China, analysts and traders say there are limits to how much more China can buy from the country that is typically one of its top suppliers of soybeans, grains and meat.

Below are details of where future Chinese purchases could rise.

SOYBEANS

The United States is usually China’s No. 2 supplier of soybeans, a product likely to make the list of new purchases even though an African swine fever epidemic in China has dented demand from Chinese pig farmers.

Soybean imports in the 2019/20 crop year are forecast by USDA at 87 million tonnes.

The USDA reported a large soybean sale on Friday of 544,000 tonnes to China, an apparent goodwill gesture a day before Trump and Xi met for the first time in seven months.

There could be a few more similar purchases in coming months as tensions ease, said Darin Friedrichs, senior Asia commodity analyst at INTL FCStone.

But any large deals were expected to be conditional on progress in talks and would be made over a long timeframe, he added.

GRAINS

China has typically been the top buyer of U.S. sorghum and, despite a 25% U.S. trade tariff on the grain, it has still bought a few cargoes in recent months.

But sorghum prices are rising, making it less viable for Chinese buyers to import the grain when they already face such a high tariff.

Demand for sorghum and corn, whose prices have climbed due to adverse weather conditions, were both very weak because of the African swine fever epidemic, said a trader with a state-owned firm who was not allowed to be identified.

“I don’t think chances are high” for more purchases, he said.

Regarding Dried Distillers Grains with Solubles (DDGS), China has announced it would keep anti-dumping duties on the feed ingredient, which the trader said made it clear Beijing did not plan to boost its imports.

Purchases of U.S. wheat have historically been relatively small. Beijing has been pushing Chinese growers to plant more high-quality wheat and boosting imports would undermine this policy, said a Chinese trader, who was not allowed to be identified.

ETHANOL

U.S. ethanol imports could feature in upcoming purchases, said Friedrichs, helping Trump win support from ethanol producers, one of his voter bases which has been hit by waning Chinese demand and U.S. initiatives affecting the industry.

But Chinese trade tariffs are prohibitive and there are no government reserves for the biofuel, limiting the amount that could be purchased by state buyers under Beijing’s orders, said an industry source who was not allowed to be quoted.

PORK

China, which usually accounts for half the world’s pork production, is expected to need all the pork it can find abroad as African swine fever devastates domestic farms.

It has already made some large purchases from the United States, even with U.S. trade tariffs of 50% in place.

Still, much bigger exports of pork to China threaten to drive up prices in the United States, which would hurt U.S. consumers and runs the risk of backfiring on Trump as he seeks re-election, Friedrichs said.

(Reporting by Dominique Patton and Hallie Gu; Editing by Edmund Blair)

Trump says China trade talks ‘back on track,’ new tariffs on hold

U.S. President Donald Trump and China's President Xi Jinping shake hands before their bilateral meeting during the G20 leaders summit in Osaka, Japan, June 29, 2019. REUTERS/Kevin Lamarque

By Roberta Rampton and Michael Martina

OSAKA (Reuters) – The United States and China agreed on Saturday to restart trade talks after President Donald Trump offered concessions including no new tariffs and an easing of restrictions on tech company Huawei in order to reduce tensions with Beijing.

China agreed to make unspecified new purchases of U.S. farm products and return to the negotiating table, Trump said. No deadline was set for progress on a deal, and the world’s two largest economies remain at odds over significant parts of an agreement.

The last major round of talks collapsed in May.

Financial markets, which have been rattled by the nearly year-long trade war, are likely to cheer the truce. Washington and Beijing have slapped tariffs on billions of dollars of each other’s imports, stoking fears of a wider global trade war. Those tariffs remain in place while negotiations resume.

“We’re right back on track,” Trump told reporters after an 80-minute meeting with Chinese President Xi Jinping at a summit of leaders of the Group of 20 (G20) major economies in Osaka, Japan.

“We’re holding back on tariffs and they’re going to buy farm products,” Trump said, without giving details about the purchases.

Trump tweeted hours later that the meeting with Xi went “far better than expected.”

“The quality of the transaction is far more important to me than speed,” he tweeted. “I am in no hurry, but things look very good!”

The U.S. president had threatened to slap new levies on roughly $300 billion of additional Chinese goods, including popular consumer products if the meeting in Japan proved unsuccessful. Such a move would have extended existing tariffs to almost all Chinese imports into the United States.

In a lengthy statement on the two-way talks, China’s foreign ministry quoted Xi as telling Trump he hoped the United States could treat Chinese companies fairly.

“China is sincere about continuing negotiations with the United States … but negotiations should be equal and show mutual respect,” the foreign ministry quoted Xi as saying.

Trump offered an olive branch to Xi on Huawei Technologies Co [HWT.UL], the world’s biggest telecom network gear maker. The Trump administration has said the Chinese firm is too close to China’s government and poses a national security risk, and has lobbied U.S. allies to keep Huawei out of next-generation 5G telecommunications infrastructure.

Trump’s Commerce Department has put Huawei on its “entity list,” effectively banning the company from buying parts and components from U.S. companies without U.S. government approval.

But Trump said on Saturday he did not think that was fair to U.S. suppliers, who were upset by the move. “We’re allowing that, because that wasn’t national security,” he said.

CHEERS FROM CHIP MAKERS

Trump said the U.S. Commerce Department would study in the next few days whether to take Huawei off the list of firms banned from buying components and technology from U.S. companies without government approval.

China welcomed the step.

“If the U.S. does what it says, then of course, we welcome it,” said Wang Xiaolong, the Chinese foreign ministry’s envoy for G20 affairs.

U.S. microchip makers also applauded the move.

“We are encouraged the talks are restarting and additional tariffs are on hold and we look forward to getting more detail on the president’s remarks on Huawei,” John Neuffer, president of the U.S. Semiconductor Association, said in a statement.

Republican U.S. Senator Marco Rubio, however, tweeted that any agreement to reverse the recent U.S. action against Huawei would be a “catastrophic mistake” and that legislation would be needed to put the restrictions back in place if that turned out to be the case.

Last month, Rubio and Democratic U.S. Senator Mark Warner urged Trump to not use Huawei as a bargaining chip for trade negotiations.

Huawei has come under mounting scrutiny for over a year, led by U.S. allegations that “back doors” in its routers, switches and other gear could allow China to spy on U.S. communications.

The company has denied its products pose a security threat. It declined to comment on the developments on Saturday.

The problems at Huawei have filtered across to the broader chip industry, with Broadcom Inc warning of a broad slowdown in demand and cutting its revenue forecast.

Trump said he and Xi did not discuss the extradition proceedings against Meng Wanzhou, Huawei’s chief financial officer, who was arrested in Canada in December on charges alleging she misled global banks about Huawei’s relationship with a company in Iran.

RELIEF AND SCEPTICISM

Scores of Asia specialists, including former U.S. diplomats and military officers, urged Trump to rethink policies that “treat China as an enemy,” warning that approach could hurt U.S. interests and the global economy, according to a draft open letter reviewed by Reuters on Saturday.

Investors, businesses and financial leaders have for months been warning that an intractable tit-for-tat tariff war between the United States and China could damage global supply chains and push the world economy over a cliff.

International Monetary Fund Managing Director Christine Lagarde on Saturday urged G20 policymakers to reduce tariffs and other obstacles to trade, warning that the global economy had hit a “rough patch” due to the trade conflict.

Although analysts cheered a resumption of talks between Washington and Beijing, some questioned whether the two sides would be able to build enough momentum to breach the divide and forge a lasting deal.

“Translating this truce into a durable easing of trade tensions is far from automatic … especially as what’s in play now extends well beyond economics to include delicate national security issues of both immediate- and longer-term nature,” said Mohamed El-Erian, chief economic adviser at Allianz.

The United States says China has been stealing American intellectual property for years, forces U.S. firms to share trade secrets as a condition for doing business in China, and subsidizes state-owned firms to dominate industries.

China has said the United States is making unreasonable demands and must also make concessions.

The negotiations hit an impasse in May after Washington accused Beijing of reneging on reform pledges made during months of talks. Trump raised tariffs to 25% from 10% on $200 billion of Chinese goods, and China retaliated by raising levies on a list of U.S. imports.

(Reporting by Roberta Rampton, Michael Martina and Chris Gallagher in Osaka; Additional reporting by Koh Gui Qing in New York, Ben Blanchard in Beijing and Leika Kihara in Osaka and Jennifer Ablan in New York; Writing by Linda Sieg, Malcolm Foster, Jeff Mason and Paul Simao; Editing by Clarence Fernandez, Himani Sarkar)

Trump prepares for ‘productive’ talks with Xi on trade war

Japan's Prime Minister Shinzo Abe is flanked by U.S. President Donald Trump and China's President Xi Jinping during a meeting at the G20 leaders summit in Osaka, Japan, June 28, 2019. REUTERS/Kevin Lamarque

By Roberta Rampton

OSAKA (Reuters) – U.S. President Donald Trump on Friday said he hoped for productive talks with Chinese President Xi Jinping on a trade war that is casting a shadow on global growth, but said he had not made any promises about a reprieve from escalating tariffs.

The trade feud and signs of a global slowdown have loomed over a two-day Group of 20 (G20) summit in the Japanese city of Osaka, where Trump and Xi met in passing and prepared for one-on-one talks on Saturday.

To lay the groundwork, Chinese Vice Premier Liu He met Trump’s treasury secretary, Steven Mnuchin, and Trade Representative Robert Lighthizer at the hotel where the U.S. delegation was staying, a source familiar with the talks said.

Expectations have dimmed that the world’s two biggest economies can ease tension when Trump and Xi meet.

“At a minimum it will be productive. We’ll see what happens and what comes out of it,” Trump told reporters after a series of meetings with leaders where he made clear that his priority was two-way trade deals to boost the U.S. economy.

Asked, however, if he had promised Xi a six-month reprieve on imposing new tariffs on a $300 billion list of Chinese imports, Trump said: “No.”

Trump has already imposed tariffs on $250 billion of Chinese imports and is threatening to extend those to another $300 billion of goods, effectively everything China exports to the United States. China has retaliated with tariffs on U.S. imports.

Asian shares stumbled and gold slipped on Friday, as doubts grew that the highly anticipated meeting between the two leaders would bring progress.

In Beijing, foreign ministry spokesman Geng Shuang said he hoped the U.S. side could meet China halfway.

“This accords with the interests of both countries and is what the international community is hoping for,” he told a news briefing.

China has consistently pushed back against criticism from Western countries, especially the United States and European Union, about things like intellectual property rights and the difficulty of doing business in China.

“China’s promise to expand its opening up is not just a cheque that can’t be cashed,” Xi told German Chancellor Angela Merkel at a side meeting in Osaka.

THREAT TO GLOBAL GROWTH

Trump’s administration also has trade feuds with India, Japan and Germany, whose leaders he met on Friday.

Trump said he saw U.S. trade prospects improving, days after criticizing the U.S.-Japan security treaty and demanding that India withdraw retaliatory tariffs.

“I think we’re going to have some very big things to announce. Very big trade deal,” Trump said before he began talks with Indian Prime Minister Narendra Modi. He gave no details.

A White House official said the two leaders had called on their teams to work on mutually beneficial trade solutions.

Trump also made a push to discuss U.S. concerns about Chinese telecoms equipment maker Huawei.

The United States has pressed its allies to shun Huawei in their fifth generation, or 5G, networks on security grounds, and it has also suggested it could be a factor in a trade deal with Xi.

“We actually sell Huawei many of its parts,” Trump said at his meeting with Modi. “So we’re going to be discussing that and also how India fits in. And we’ll be discussing Huawei.”

Several leaders warned that the growing Sino-U.S. trade friction was threatening global growth.

“The trade relations between China and the United States are difficult, they are contributing to the slowdown of the global economy,” European Commission President Jean-Claude Juncker told a news conference.

Xi also warned about the protectionist steps he said some developed countries were taking.

“All this is destroying the global trade order … This also impacts common interests of our countries, overshadows peace and stability worldwide,” Xi told a gathering of leaders of the BRICS grouping on the sidelines of the G20.

Japanese Prime Minister Shinzo Abe, other leaders and delegates attend a family photo session at G20 leaders summit in Osaka, Japan, June 28, 2019. REUTERS/Kim Kyung-Hoon/Pool

Japanese Prime Minister Shinzo Abe, other leaders and delegates attend a family photo session at G20 leaders summit in Osaka, Japan, June 28, 2019. REUTERS/Kim Kyung-Hoon/Pool

REFORMING WORLD TRADE RULES

Modi, at the same meeting, called for a focus on reforming the World Trade Organization (WTO) and Russian President Vladimir Putin decried what he called efforts to destroy the Geneva-based body.

“We consider counter-productive any attempts to destroy WTO or to lower its role,” Putin said.

The situation of the global economy was worrying, as trade felt the effect of “protectionism (and) politically motivated restrictions”, he added.

Russian Economy Minister Maxim Oreshkin said there was no agreement on how to reform the WTO system, whose rules Washington believes are outdated, though a Japanese official said G20 members agreed on the importance of reform.

The G20 leaders were also struggling to find common ground on issues such as information security, climate change and migration, said Svetlana Lukash, a Russian official helping to coordinate the meetings.

A White House official took a more positive view, saying there was a “good sense of unity in the room” between most leaders on working together on economic issues.

“China was less positive in its outlook which was in stark contrast to basically everybody else,” said the official, who spoke on condition of anonymity.

Trump, who often castigates trading partners on Twitter and at raucous political rallies, put a positive spin on trade developments.

“I appreciate the fact that you’re sending many automobile companies into Michigan and Ohio and Pennsylvania and North Carolina,” Trump told Japanese Prime Minister Shinzo Abe, who had presented him with a map showing the locations of Japanese auto investments in the United States.

Abe urged G20 leaders to send a strong message in support of free and fair trade, warning that trade and geopolitical tensions were rising and downside risks to the global economy prevailed. He also said he wanted to see momentum toward WTO reform.

Japanese and U.S. officials will meet next month to accelerate progress toward a trade deal, Economy Minister Toshimitsu Motegi told reporters after meeting Lighthizer, but added that they did not discuss a target date.

(Additional reporting by Leika Kihara, Kiyoshi Takenaka and Katya Golubkova; Additional reporting by Ben Blanchard in BEIJING; Writing by Linda Sieg in Tokyo; Editing by Clarence Fernandez, Robert Birsel and Nick Macfie)

U.S. aims to restart China trade talks, will not accept conditions on tariff use

By Jeff Mason

WASHINGTON (Reuters) – The United States hopes to re-launch trade talks with China after President Donald Trump and President Xi Jinping meet in Japan on Saturday, but Washington will not accept any conditions around the U.S. use of tariffs in the dispute, a senior administration official said on Tuesday.

Trump has threatened to impose tariffs on another $325 billion of goods, covering nearly all the remaining Chinese imports into the United States – including consumer products such as cellphones, computers and clothing – if the meeting with Xi produces no progress in resolving a host of U.S. complaints around the way China does business.

The two sides could agree not to impose new tariffs as a goodwill gesture to get negotiations going, the official said, but he said it was unclear if that would happen.

The United States was not willing to come to the Xi meeting with concessions, said the official, who spoke on the condition of anonymity. Washington wants Beijing to come back the table with the promises it withdrew before talks broke down, he said.

China has shown no softening in its position and said on Monday that both sides should make compromises in the trade talks and that a trade deal has to be beneficial for both countries.

The back-and-forth set up what could prove to be a tricky meeting between Trump and Xi at the Group of 20 summit meeting in Osaka. The session will be the first time they have met since trade talks between the world’s two largest economies broke down in May, when the United States accused China of reneging on reform pledges it made.

Chinese Vice Premier Liu He, who has led trade talks for Beijing, held a phone conversation with his counterparts, U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin, on Monday, according to China’s Ministry of Commerce. The three men are helping to pave the way for talks between the leaders later this week.

Expectations for that meeting so far appear to be low. The best-case scenario would be a resumption of official talks, which could ease fears in financial markets that the already long trade dispute might continue indefinitely. The fears have pummeled global markets and hurt the world economy.

Trump advisers have said no trade deal is expected at the meeting but they hope to create a path forward for talks. Once negotiations resume, they could take months or even years to complete, the senior Trump administration official said, with some parts agreed early and others needing more time.

A resumption of negotiations could put that threat of further tariffs on hold, at least for now.

But if Trump sees no progress and decides to raise tariffs, the relationship between the world’s two largest economies would deteriorate further.

“I think if they go with the tariffs, the trade talks are dead. Period,” said one person familiar with the talks.

The United States has made clear it wants China to go back to the position it held in a draft trade agreement that was nearly completed before Beijing balked at some of its terms, particularly requirements to change its laws on key issues.

Beijing wants the United States to lift tariffs, while Washington wants China to change a series of practices including on intellectual property and requirements that U.S. companies share their technology with Chinese companies in order to do business there.

As part of the trade war, Washington has already imposed 25% tariffs on $250 billion of Chinese goods, ranging from semi-conductors to furniture, that are imported to the United States.

PRESSURE BUILDING

The president has spoken optimistically about the chances of a deal.

The administration official said rounds of meetings between top trade officials from both countries likely would begin again after the G20 summit. He noted that although the vice premier still led China’s trade delegation, new names had been added to the list who could be hard-liners.

The official said Trump and Xi were unlikely to get into the fine details of the draft trade pact, although the case of Chinese tech giant Huawei Technologies Co may come up during talks.

Pressure on Huawei, which the U.S. government has labeled a security threat, has increased in recent days.

About a dozen rural U.S. telecom carriers that depend on Huawei for network gear are in discussions with its biggest rivals, Ericsson and Nokia, to replace their Chinese equipment, sources familiar with the matter said.

And the U.S.-based research arm of Huawei, Futurewei Technologies Inc, has moved to separate its operations from its corporate parent since the U.S government in May put Huawei on a trade blacklist, according to two people familiar with the matter.

Trump has indicated a willingness to include the Huawei issue in a trade deal, despite the national security implications cited by his advisers about the company. Meanwhile, U.S. parcel delivery firm FedEx Corp on Monday sued the U.S. government, saying it should not be held liable if it inadvertently shipped products that violated a Trump administration ban on exports to some Chinese companies.

The move came after FedEx reignited Chinese ire over its business practices when a package containing a Huawei phone sent to the United States was returned last week to its sender in Britain, in what FedEx said was an “operational error.”

(Reporting by Jeff Mason; additional reporting by Alexandra Alper, Jane Lanhee Lee, Tarmo Vikri, Andrew Galbraith and Angela Moon; editing by Simon Webb and Cynthia Osterman)

S&P 500 hits all-time high on trade optimism

FILE PHOTO: Traders work on the main trading floor after the opening bell at New York Stock Exchange (NYSE) in New York, U.S. June 20, 2019. REUTERS/Brendan McDermid/File Photo

By Amy Caren Daniel and Shreyashi Sanyal

(Reuters) – The S&P 500 touched a record high for the second straight session on Friday as hopes of trade talks between Washington and Beijing were lifted by U.S. Vice President Mike Pence’s decision to defer a planned speech on China policy.

The decision was taken amid “positive signs” that trade talks with China could be back on track, the Wall Street Journal reported, citing a senior administration official.

The benchmark S&P 500 index hit an intraday high of 2,964.15 on Friday, but retreated into a tight range as rising tensions between the United States and Iran kept investors on edge.

The United States and China have said they would restart their trade talks after a lull at the Group of 20 summit in Japan next week.

“Investors are cautiously optimistic about the G20 summit. If they make progress then markets will celebrate that,” said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.

Stocks are now set to log their third straight week of gains, after posting their worst monthly performance this year in May on fears the prolonged trade war would hit global economic growth.

U.S. President Donald Trump said on Friday he aborted a military strike on Iran in response to Teheran downing a U.S. drone, but the possibility of a U.S. retaliation pushed crude prices higher and helped lift the energy sector by 0.49%. [O/R]

Traders also pointed to higher volatility during Friday’s session on account of “quadruple witching,” as investors unwind interests in futures and options contracts prior to expiration.

At 13:09 p.m. ET, the Dow Jones Industrial Average was up 45.72 points, or 0.17%, at 26,798.89 and the S&P 500 was down 0.53 points, or 0.02%, at 2,953.65.

The Nasdaq Composite was down 7.13 points, or 0.09%, at 8,044.21.

The tech-heavy index was weighed down by a 2.02% fall in PayPal Holdings Inc after the digital payments company said its chief operating officer Bill Ready would step down.

CarMax Inc rose as much as 6% to a record high after the used-vehicles retailer posted quarterly results above analysts’ expectations.

Carnival Corp fell for the second day, down 4.53%, and among the biggest decliners. Several brokerages trimmed their price targets after the cruise operator cut its 2019 profit forecast.

Declining issues outnumbered advancers for a 1.47-to-1 ratio on the NYSE and for a 1.71-to-1 ratio on the Nasdaq.

The S&P index recorded 33 new 52-week highs and two new lows, while the Nasdaq recorded 42 new highs and 49 new lows.

(Reporting by Amy Caren Daniel and Shreyashi Sanyal in Bengaluru; Editing by Sriraj Kalluvila)

U.S. farmers experimenting with hemp as China trade war drags on

A sample of industrial hemp seeds is shown at a research station site in Haysville, Kansas, U.S., May 2, 2019. REUTERS/Julie Ingwersen

By Julie Ingwersen and David Randall

HAYSVILLE, Kansas (Reuters) – A growing number of U.S. farmers battered by low grain prices and the threat of a prolonged trade war with China are seeking salvation in a plant that until recently was illegal: hemp.

A cousin of cannabis plants that produce marijuana, hemp is used in products ranging from food to building materials and cannabidiol, or CBD oil, which is being touted as a treatment for everything from sleeplessness to acne to heart disease.

Interest in hemp picked up with the passage of the 2018 Farm Bill in December, which removed hemp from the federal Drug Enforcement Administration’s list of controlled substances and put it under the oversight of the U.S. Department of Agriculture (USDA). Unlike marijuana, industrial hemp doesn’t contain enough of the psychoactive chemical THC to give users a high.

The new rules call for the USDA to award hemp planting licenses to farmers but the agency has not yet regulated the process, meaning individual states are still issuing the licenses.

Industrial hemp plantings this year could double from the 78,176 acres seeded in 2018, said Eric Steenstra, president of advocacy group Vote Hemp. In 2017, 25,713 acres were planted on pilot programs authorized under the 2014 farm bill.

The U.S. hemp market is growing along with supply. U.S. sales of hemp reached $1.1 billion in 2018 and are projected to reach $1.9 billion by 2022, according to Vote Hemp and the Hemp Business Journal, a trade publication.

The profit potential is high: A good yield of food-grade hemp, for instance, can net farmers about $750 per acre, said Ken Anderson, founder of Prescott, Wisconsin-based hemp processor Legacy Hemp. Hemp seeds can be baked in to bread or sprinkled onto cereal or salads.

“That’s a profit that blows corn and wheat and everything else out of the water,” he said.

By comparison, soybeans bring in $150 or less per acre, and sales of the U.S. crop to China have fallen sharply since the onset of the trade war last year.

Before they can cash in on hemp, however, U.S. farmers must learn the science of producing an unfamiliar crop and wrestle with shifting regulations and other uncertainties.

“Nobody has any experience whatsoever,” said Rick Gash, 46, a businessman in Augusta, Kansas, who plans to grow his first-ever hemp crop on a horse pasture on his old family property.

NEW FRONTIER FOR REGULATION

CBD oil, which is concentrated in the hemp plant’s flowers, made up an estimated 23 percent of hemp sales in 2017, according to the Hemp Business Journal.

While the USDA oversees hemp planting, regulation of hemp products mostly falls to The Food and Drug Administration (FDA). Though the agency has not approved food and supplements containing CBD, such products are widely available and the agency has done little to curtail their sales.

Furthermore, the FDA mainly has jurisdiction over commerce between states, meaning products developed and sold locally in states that have more tolerant laws for hemp products is legal.

“To date, the FDA has only gone after people making aggressive claims – cancer treatment claims, AIDS treatment claims and the like,” said attorney Jonathan Havens, former FDA regulatory counsel and current co-chair of cannabis law practice at Saul Ewing Arnstein & Lehr.

Other CBD products with no health claims or ‘soft’ claims have drawn no federal enforcement, he said, “causing many people to confuse availability with legality.”

The FDA said in a statement to Reuters it had developed a strategy to evaluate existing CBD products and create lawful pathways for bringing them to market. The agency knows some companies are marketing products containing hemp-derived compounds in ways that violate the law but has prioritized those making unwarranted health claims for enforcement action, the FDA said.

“Our biggest concern is the marketing of products that put the health and safety of consumers at greatest risk, such as those claiming to prevent, diagnose, treat, or cure serious diseases, such as cancer,” the agency said in the statement.

CBD ICE CREAM?

Despite the uncertainty, analysts at U.S. financial services firm Cowen & Co estimate that products with CBD as an ingredient will generate $16 billion in retail sales for humans and animals in the U.S. by 2025.

Hemp seed is pictured at a salad bar at Whole Foods Market in Evanston, Illinois, U.S., June 10, 2019. REUTERS/Julie Ingwersen

Hemp seed is pictured at a salad bar at Whole Foods Market in Evanston, Illinois, U.S., June 10, 2019. REUTERS/Julie Ingwersen

Companies are also making big bets: Kroger Co, the nation’s largest grocery chain, said on Tuesday it plans to sell CBD creams, balms and oils in nearly 1,000 stores across 17 states.

Unilever Plc’s Ben & Jerry’s ice cream chain said in a May 30 statement it planned to debut CBD-infused ice cream flavors as soon as consuming the oil is “legalized at the federal level.”

In Kentucky, which launched a pilot program for hemp in 2014, farmers who used to grow tobacco are finding hemp grown for CBD oil to be a profitable alternative with a better reputation.

“When I was growing tobacco, everyone said I was growing something that’s bad for your health,” said Brian Furnish, an eighth-generation tobacco farmer. “It’s fun to grow something that is making people feel better.”

Farther west, in the U.S. midsection where farmers are more familiar with commodity crops like corn and wheat and have been more scarred by the trade war, some see hemp as a rotational crop grown on a larger scale for seed and fiber, rather than for its labor-intensive CBD oil.

Entrepreneur Rick Gash, founder and CEO of the Hemp Development Group LLC, surveys a field where he plans to grow industrial hemp near his home in Augusta, Kansas, U.S., May 3, 2019. REUTERS/Julie Ingwersen

Entrepreneur Rick Gash, founder and CEO of the Hemp Development Group LLC, surveys a field where he plans to grow industrial hemp near his home in Augusta, Kansas, U.S., May 3, 2019. REUTERS/Julie Ingwersen

EXPENSIVE SEED, HARVESTING BY HAND

The Kansas Department of Agriculture began issuing licenses to growers this spring, allowing the crop to be cultivated in the state this year for the first time in decades.

Jason Griffin, a specialist at Kansas State University, remains skeptical of the crop’s potential and cringes when he hears descriptions like ‘gold rush’ to describe it.

Beyond navigating changing regulations, expensive seed is one of many challenges that pioneering hemp farmers will face.

Special equipment for harvesting hemp may also be required, although some growers have been able to re-purpose the combines they already own. The hemp plant’s flowers are typically harvested by hand, while hemp for fiber is grown in fields and must be cut mechanically and dried in the field before storage.

Farmers are particularly dependent on the end buyers of hemp, as there are few third-party brokers to sell it as there are for other cash crops.

“You can’t just go to the local grain elevator and ask what’s your cash price for hemp grain right now,” said Legacy Hemp’s Anderson.

He often cautions farmers not to plant seeds until they have a contract with a buyer because prices vary widely. Legacy Hemp signs contracts with farmers before the planting season.

Other farmers are concerned over the long-term prospects. Montana wheat farmer Nathan Keane is growing female hemp plants exclusively for CBD oil, starting in a greenhouse and transplanting each plant later by hand.

“Honestly, I think the CBD thing is going to be a bubble,” he said. “I will ride the wave but I’m really hoping the sustainability of hemp is going to be in the grain and the fiber.”

(Reporting by Julie Ingwersen and David Randall; Additional reporting by Richa Naidu; Editing by Caroline Stauffer and Brian Thevenot)