China: Beijing’s Negotiating Position

Published on May 9, 2019

On Wednesday, China’s President Xi Jinping presided over a meeting of the Standing Committee of the Political Bureau of the Communist Party of China Central Committee that was also attended by all three Vice Premiers and all the CPC Politburo members. The main agenda item was to set the negotiation guidelines and bottom lines for Vice Premier Liu He when he arrives in Washington for the May 9-10 trade talks with the Trump Administration:

*** China is not expecting a trade agreement with the US will be reached in Washington. The main purpose of Liu’s trip to Washington is not to reach a deal, which Beijing thinks at this point highly unlikely, but to make President Trump and the US side understand what China can and cannot compromise, keep negotiations alive, and if possible avert the threatened tariffs tonight. Contrary to what the US negotiators say, Chinese officials continue to maintain there has been no backtracking by Beijing on almost all aspects of the trade deal, and stress there are no conditions under which the Chinese negotiating team can negotiate under pressure during the Washington talks. ***

*** China does not expect to immediately engage in a full-blown trade war with the US. Instead, Beijing’s expectation for the Washington talks is to continue negotiations on issues that are disputed by both sides in the future. If, however, the parties can somehow push through a final text of the agreement in this round of negotiations, the US should not impose new tariffs on Friday. ***

*** China on the other hand is ready to impose new tariffs on US goods if the US follows through with its threatened 25% tariffs on the current 10% levies on $200 billion of Chinese goods on Friday: China will certainly impose 25% tariffs on the current 10% levies on $60 billion of US goods at the same time, and if the US raises tariffs on a portion of the $200 billion of Chinese goods, China will likewise increase tariffs on some of the $60 billion of US goods. ***

Other concluding points to the meeting included:

** In his negotiations, Vice Premier Liu was instructed to stick to China’s position and bottom line and never compromise or yield to the US side on issues concerning China’s “core interests,” which includes the red line that any enforcement mechanism in the agreement must be bilateral, not unilateral. Even if the negotiations were to fail, Xi assured that the Washington talks would still be regarded as a success (for China) if China’s position is firmly expressed at the negotiation table.

** Vice Premier Liu was advised that if the Chinese negotiating team compromised with the US on issues involving the country’s core interests, it would be a failed negotiation. He was reminded he and every member of the negotiating team represent the 1.4 billion Chinese people, and for their benefit, it would be best to reject any “unreasonable demands and unwarranted accusations from the US.”

** The impact of the trade war on China’s economy in the past 10 months was deemed to be so far in line with the judgment of the Political Bureau in July of last year. Even if a full-blown trade war were to break out right now, China’s economic growth was claimed would remain at around 6.4% this year, noting China’s economy is resilient enough to withstand a trade war with the US.

** If China and the US were to enter a protracted trade war, the Political Bureau maintained its judgment last July that China would lose more than the US in the first year, the losses in the two countries would be basically equal in the second year, and the US would lose more than China in the third year.

** The trade war, it was noted, has not only strengthened China’s economic and trade relations with Europe and Japan, but also promoted China’s economic and trade relations with India, Brazil, Ukraine and others. China has imported large quantities of Indian, Brazilian and other domestic products to replace US products, while US agricultural products are rapidly losing market share in China. China also aims to get rid of its dependence on US chips by 2023.

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