China’s trade negotiators head to Washington DC this week to talk with their US counterparts with a solid two weeks of momentum in tow.
** Negotiators believe the biggest achievement of the latest round of trade talks was in both sides agreeing to aim for a compromise on the first draft of a trade agreement — also referred to as a Memorandum of Understanding — in which each side will agree to stop the imposition of any new tariffs until Presidents Donald Trump and Xi Jinping sign a formal trade agreement. The goal now is to try and conclude the MOU this week, if possible, (see SGH 2/4/19, “China: Eyeing a February Deal”), and to submit the MOU to the two presidents for signature at their next meeting.
** As to the timing and target for a summit between the two leaders, Xi expressed a willingness in the discussions last week to meet with Trump, if all goes as planned, as soon as this spring. And even though initial leaks are that the “Buenos Aires truce” deadline expiring on March 1 will be extended for 60 days, Chinese sources indicate that if the trade “framework” (MOU) is agreed to soon by the two leaders, they could move on a summit as soon as the second half of March.
** Indeed, from what we understand, Treasury Secretary Steve Mnuchin conveyed an invitation from Trump to visit as soon as next month (presumably at Mar–a–Lago), but that will remain pending completion of the MOU.
** As to the state of the current negotiations, our sourcing has been and remains strongly at odds with the more widely reported news reports dismissive of the rounds of negotiations over these last weeks as “same old, same old” from Beijing, with little to no progress on any real issues of importance to Washington.
** For starters, as far as the highly politicized and campaign-promise charged attempts by the Trump administration to address the deficit with China head on goes, our understanding is that the US has already received concrete assurances that China will import $200 billion of American goods in 2019 – meaning a net, unprecedented, increase in imports of $45 billion in one year. For a political victory, Trump will be able to claim that no US President has ever been able to boost exports to China at such a dramatic pace before.
** As to the “soft” but equally important issue of Intellectual Property Rights protection, we also continue to hear that, as opposed to most of the media reporting, there has been some progress and concessions offered from Beijing to the US over the last weeks that do matter, which while arguably could be said are never enough, could certainly serve as the basis for a settlement going forward. Notably, for example, China has just established courts specifically dedicated to the protection of intellectual property rights, and specified that foreign companies are to be granted in court the same protections as Chinese firms (see also SGH 1/23/19, “China: Keeping US Trade Talks on Track”).
** On the other hand, addressing forced technology transfers remains a thorny issue, as Beijing continues to take the position these are voluntary agreements between US and Chinese firms to “trade technology for market access” in establishing joint ventures. For what it’s worth, they have nevertheless agreed to look into any cases where US firms may feel technology has been stolen and laws have been broken. Similarly, China’s negotiators have drawn a fairly bright red line around their subsidies of State-Owned Enterprises, a longer term, global issue that we feel will be swept up into future discussions, if ever.
** Finally, Chinese negotiators see, as we have maintained, the positioning of “hardliner” US Trade Representative Robert Lighthhizer at the helm of the negotiating team as a sign of seriousness from Trump in striking a tough deal that can be sold back home politically rather than as an obstacle to progress in the trade talks. Regardless, it is the more deal-friendly Mnuchin who has been in closest contact with China’s Vice Premier Liu He, and who is seen as the closest and most direct confidant to President Trump.