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US- China Trade Talks Break Down After US Rejects “Frustrated” Beijing’s Offer To Cut Deficit

While much of the overnight session was market by the previously discussed buying euphoria that sent futures over 1% higher after Monday’s disappointing close following a “conciliatory” speech by China’s president Xi who – once again – promised to open China’s economy and lower import tariffs, there was a moment of sheer angst when just before 4am ET, Bloomberg almost broke the narrative of Xi trade war “reconciliation” when it reported that trade talks between the US and China broke down last week after the Trump administration demanded that China curtail support for high-technology industries, which in turn spiked the JPY, if only briefly.

As Bloomberg details, the tentative negotiations broke down when Liu He, a vice premier overseeing economics and finance, told officials last Thursday that Beijing had rejected a U.S. request to stop subsidizing industries related to its “Made in China 2025” initiative, a key target of Peter Navarro’s ire which he has accused China of using to force companies into transferring technology in areas like robotics, aerospace and artificial intelligence.

Curiously, China’s rejection of U.S. demands came after Beijing had already offered to narrow the trade deficit by $50 billion, including by importing more liquefied natural gas, agricultural products, semiconductors and luxury goods. The plans also included opening the financial sector at a faster rate and giving U.S. companies more access to China’s booming e-commerce market, the person added.

In other words, China was willing to make a major concession in the escalating trade war, but the Trump administration rebuffed it when it considered that Beijing would not taper the “2025” initiative, and also coincides with Trump’s escalated demand last Thursday that called for an addition $100 billion in tariffs.

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