US-China Talks Expected this Weekend

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Robert R. Fragnito | Chief Operating Officer | Financial Advisor

The evolving saga of “Cold War 2.0" will add another chapter this weekend as US Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He are reportedly set to meet around August 15. This will be the second meeting of the summer where senior officials from both countries will meet to discuss the progress of the phase-one trade deal signed earlier this year.

Tensions between the US and China continue to increase over trade issues, tech wars and heightened military activity in the South China Sea and the Taiwan Strait. Recent actions by both governments will likely add more topics of discussion at the virtual meeting.

US Health Secretary Alex Azar’s visit to Taiwan earlier this week raised eyebrows in Beijing as Azar became the highest-level US official to visit the island nation in over four decades. In response to his visit, China vowed retaliation. Taiwan’s air force said Chinese fighter jets crossed over the mid-line of the Taiwan Strait shortly before Azar met with Taiwan’s President Tsai Ing-wen. Azar delivered a message of “strong support and friendship from President Trump to Taiwan” in Tsai’s office during the visit.

On the military front, the South China Sea and Taiwan Strait remain major sources of contention for Beijing and Washington. Late last week US Secretary of Defense Mark Esper and China’s Defense Minister Wei Fenghe held a phone call to defuse tensions in the region. The conversation lasted over an hour and a half, and both defense officials affirmed maintaining a “constructive, stable and result-oriented” defense relationship.

Military activity in the South China Sea and Taiwan Strait has ramped up for both nations in recent weeks. The US conducted military drills with two aircraft carriers following Chinese activity in the South China Sea. China is set to conduct live fire exercises starting on August 16 near the Zhouchan archipelago approximately 340 miles north of Taiwan in the East China Sea.

Fears of a possible unintended confrontation at sea between the US and China have grown among policy makers and experts. China’s military has reportedly instructed officers and pilots “not to fire the first shot” if faced with possible incidents involving the US Navy in the Western Pacific. This comes at a time where the US and South Korea will begin their annual joint military drills from Aug 16-28.

Issues concerning the escalating tech war between Washington and Beijing will be discussed at the meeting. US President Donald Trump signed an executive order last week banning apps TikTok and WeChat over security concerns. Bloomberg reported this week that China’s representatives will bring up the issue to Lighthizer in an effort, in our view, to possibly deescalate this situation as the order takes effect in 45 days from signing. Microsoft is in the lead position for a potential purchase of TikTok from its Chinese parent company ByteDance. News of the purchase has been well received by the Trump administration to curb possible personal data transfers to China's government.

Diplomatic relations have also witnessed new lows as consulate closures have been executed in both countries. China ordered the closure of the US consulate in Chengdu as a retaliatory move for the closure of its consulate in Houston. Secretary of State Mike Pompeo defended the Houston closure citing the Chinese consulate was a “hub of spying and intellectual property theft.”

We believe this is a much-needed temperature check for the phase-one trade deal. As it stands, China has come up short in its commitments to purchase over $200 billion in US goods and so far China has completed less than one quarter of that amount. It is conceivable that Chinese negotiators are seeking more time to fulfill trade commitments or may request a reprieve considering the pandemic, but this is pure speculation at this point.

We at MCF will continue to monitor these events closely as they unfold and plan to produce a follow-up from the outcome of this meeting.

Additional geopolitical events we are monitoring:

• Israel, UAE to normalise relations in shift in Mideast politics; West Bank annexations on hold
• Officials: U.S. Seizes Iranian Gas Heading for Venezuela
• EU wants to negotiate solution with U.S. on aircraft subsidy row, Commission says
• Macron pushes for a government of technocrats to rescue Lebanon
• U.N. Security Council Starts Iran Arms Embargo Vote, Result Friday
• UK says trade talks with U.S. continue to make positive progress
• B-2s head to Diego Garcia amid China-US tensions
• Greece, U.S. Foreign Ministers to Meet Over Eastern Mediterranean Tensions
• US Commander: Islamic State Threat in West Syria Growing
• Japan places military on standby for ‘intrusions’ by dozens of Chinese fishing boats in disputed waters

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OUR FIRM

MCF Capital Management, LLC is an independent, family-run, financial advisory firm that manages investment portfolios for individuals and businesses through quantitative market data analysis. 

ABOUT THE AUTHOR

Robert R. Fragnito is the Chief Operating Officer and a Financial Advisor at MCF Capital Management, LLC. He earned his bachelor’s degree from The George Washington University in Washington, DC. He majored in International Affairs with a functional concentration in Conflict and Security and a regional concentration in the Middle East. Robert interned for several foreign policy organizations in Washington, DC and continues to write and publish on geopolitical topics.

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