China: A Tough Trade Round with the US

Published on May 4, 2018

The Trump Administration went to great lengths to downplay expectations for this week’s meeting between top-level US and Chinese officials to address growing trade frictions between the two countries.

With little progress to show beyond an opening for further talks, that was clearly the right thing to do. Even so, the highlighting at this stage of just how far apart the two sides still are in these discussions may not have been a costless exercise.

*** In the run up to these meetings, Beijing quietly ratcheted up the pressure on Washington to make a point they are forcing the US side to the negotiating table, and not the other way around. Over the last few weeks, from what we understand, Chinese central authorities have accepted applications from European, Canadian, and Japanese financial institutions to conduct business in China, but postponed accepting applications from US financial institutions and companies, including automakers, to do the same. ***

*** And while leaving the door open for negotiation, senior Chinese officials involved in these discussions continue to push back on what they see as extremely aggressive US demands, justified or not. It remains, we are told, impossible for China to make “substantial concessions” on its existing positions; namely that China will never abandon its Made in China 2025 strategy, never give up subsidies to state-owned enterprises, and never allow a “sharp appreciation” of the RMB to correct US-China trade imbalances. ***

*** It is also, they maintain, “absolutely impossible” for China to unilaterally reduce its trade surplus, as demanded, especially at the pace suggested by the US delegation. What the Chinese side continues to look for in exchange from the US is a reciprocal relaxation of existing restrictions on high-tech exports to China, a long-time demand of Beijing’s, and one that while perhaps good for business, flies in the face of US strategic security considerations. ***

Setting the Tone

In the run-up to this week’s trip by the US economic team to Beijing, spearheaded by Treasury Secretary Steve Mnuchin, Chinese officials were struggling to draw the line between US negotiating demands and political positions.

These talks already, they warned, should not be considered a forum for resolving the bilateral trade issues, but rather just for the two sides to feel each other out. And if the Trump team was to simply insist on its own positions, focusing only on “short-term America First” goals, they would all go away from the meetings empty-handed.

Indeed, the Chinese government, to pre-empt any potential negative headlines in the wake of the meetings, ordered Chinese media to refrain from reporting on the trade talks beyond what would officially be released by the state-controlled Xinhua News Agency. Washington, for its part, was careful to downplay expectations as well.

Looking for an Opening

Looking ahead, Beijing notes that the US Trade Representative has scheduled a public hearing for May 15 on Chinese trade practices, and that the US Treasury Department has said it may announce new restrictions on Chinese investments into the US on May 21.

Chinese officials are watching these closely for any signs of an opening from the US, but have fully prepared adequate measures to counter any new round of trade pressures from Washington if these are to go ahead as planned, and the current talks are to fail.

Their assumption, however, remains that both sides have shown an intent, and will show a continued commitment, to enter into a comprehensive trade agreement – difficult as that will be to effect.

And, if the Trump Administration indicates it is ready to compromise on its positions, China, we are told, will send a high-level delegation to Washington for a second round of talks, to be held sometime in June.

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