Commerce, Economy / Finance, Multilateralism & Unilateralism

China and U.S. to Continue Trade Talks Next Week

Feb 15 2019

By Keith Bradsher* – The New York Times

BEIJING — Talks between the United States and China to end their trade war will continue in Washington next week, officials from both countries said on Friday, hours after high-level negotiations between American and Chinese diplomats ended in Beijing.

While the White House described “progress” in the talks, many issues remain unresolved and the discussions will continue as both sides try to reach an agreement ahead of President Trump’s March 2 deadline. Mr. Trump has threatened to raise tariffs on $200 billion worth of Chinese goods if a deal cannot be reached by that date, though he suggested earlier this week that he would push the deadline back if there was progress in the talks.

“These detailed and intensive discussions led to progress between the two parties,” the White House said in a statement. “Much work remains, however.”

American officials said that the talks focused on so-called “structural” reforms that the United States wants China to make and on China’s purchases of American goods and services. The White House on Friday said that any agreement between the two countries will be included in a “memoranda of understanding between the two countries.”

Big sticking points remain in the trade talks, said the people briefed on the negotiations.

The most difficult and intractable issue involves the Trump administration’s desire to put meaningful restrictions on China’s ability to keep investing enormous sums of money from the government, and from government-affiliated financial institutions, in a wide range of advanced manufacturing sectors that compete with American industries. These include areas like commercial aircraft manufacturing, semiconductors and artificial intelligence.

Another challenge for negotiators is that both sides perceive national security as being at stake in some of the issues.

China has been reluctant to unblock internet access to its market for some of Silicon Valley’s biggest and most successful businesses, like Facebook and Google. It fears that without stringent censorship, everything from democratic ideas to pornography would be harder to fight.

Treasury Secretary Steven Mnuchin said that he and Robert Lighthizer, the United States trade representative, had “productive meetings” with Liu He, China’s economic czar. Still, it wasn’t immediately clear late Friday whether they had moved significantly closer to resolving any of the thorny issues separating the two sides.

Mr. Lighthizer and Mr. Mnuchin also met with Xi Jinping, China’s top leader, on Friday afternoon at the Great Hall of the People.

But the talks did allow both sides to at least begin hashing out their differences. Both the United States and China began somewhat mechanically combining their respective lists of offers into a memorandum of understanding that included areas of disagreement in bracketed text, with each side’s separate views listed for each issue, said people briefed on the talks. Compiling the various offers could someday make it possible for the countries’ leaders to go through the options more systematically.

But the broad areas of disagreement still left in the bracketed text mean that an actual, comprehensive understanding between the two sides remains elusive.

The negotiations did not include any big new concessions by China to limit its government-led push to build high-tech industries in competition with the West, said the people, who insisted on anonymity because of the diplomatic and financial sensitivity of the talks.

China Central Television, a state-controlled broadcaster, said early Friday evening on its website that progress had been made. It said the talks would continue in Washington next week.

“New progress has been made on important and difficult issues,” C.C.T.V. said, without providing any details. “Although there is still a lot of work to be done, we have hope.”

China is in the middle of a sharp economic slowdown, set off partly by Beijing’s efforts to rein in debt but also by a sudden faltering in the willingness of consumers to spend and industries to invest. Many business leaders attribute the decline in consumer and investor confidence to the trade war.

That economic backdrop has given Chinese leaders an incentive to emphasize progress in the talks. Mr. Mnuchin has also stressed progress, allaying worries among stock market investors. Mr. Lighthizer has said little in public while pressing for a comprehensive trade deal.

The two sides have been struggling with more than 100 issues raised by the United States in a lengthy statement given to Chinese officials in May. In the preparations for this week’s talks, the sides had been unable even to agree on a draft framework for the broad outlines of a possible deal, so expectations for any comprehensive settlement had been low from the start.

Many of the issues, like how to handle the tech sector, have been festering between the United States and China for a long time. Many high-tech issues are also changing and evolving along with the sector, making it especially difficult to put in place a durable agreement.

“Particularly in the areas of technology regulation and standards, it will be a game of Whac-a-Mole at best,” said James Green, who was the top trade official at the United States Embassy in Beijing until August and is now a senior nonresident fellow at Georgetown University.

The negotiations this week have encompassed some issues on which incremental progress has been made in recent weeks, people briefed on the negotiations said. China has agreed to disclose more of its government subsidies to the World Trade Organization, said these people, who insisted on anonymity because of diplomatic sensitivities in the talks.

Chinese officials have also expressed a willingness to let foreign companies participate in panels that set standards on important industrial issues, like fuel-economy averages for cars. But while that might give foreign companies a glimpse of upcoming rules, they would be in a minority and might not have much influence.

The Trump administration also sees national security at issue in a long list of products that the United States either already imports from China or might be likely to import in the next few years. These include many products, from nuclear reactor components to aircraft engine parts, from among the $50 billion of annual imports on which the administration imposed 25 percent tariffs in the summer.

China has tried repeatedly over the past year and a half to allay American concerns about its government-subsidized investments in high-tech industries by offering to guarantee very large purchases from the United States of everything from soybeans to helicopters.

But the Trump administration and the American business community have mostly been leery about such a potentially short-term fix if it does not address long-term issues involving China’s government-backed drive for high-tech competitiveness. Some market-oriented economists in China have also advocated limits on the government’s industrial policies, because they worry about the ever-rising debt associated with them.

“If we don’t address the deeper issues, neither side will be doing itself any favors,” said Tim Stratford, who is the chairman of the American Chamber of Commerce in China and the managing partner of the Beijing office of the Covington and Burling law firm.

Mr. Trump and Mr. Xi agreed in Buenos Aires on Dec. 1 on a stopgap compromise that does not fully satisfy either side but might prove durable. Mr. Trump agreed not to raise tariffs further then but kept in place the tariffs he had already imposed, while China removed most of the retaliation that it had imposed.

That deal has not satisfied trade hawks in the United States, who want broader changes in the bilateral relationship, or the more nationalistic wing of the Chinese Communist Party, which perceived the deal as representing, to some extent, a Chinese retreat. Feb. 15, 2019

Ailin Tang contributed research from Shanghai and Alan Rappeport from Washington.

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* Keith Bradsher is the Pulitzer Prize-winning Shanghai bureau chief for The New York Times, having reopened the Shanghai bureau on Nov. 14, 2016. He has previously served as the Hong Kong bureau chief and the Detroit bureau chief for The Times. Before those postings, he was a Washington correspondent for The Times covering the Federal Reserve and international trade, and a New York-based business reporter covering transportation and telecommunications for The Times.

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Related:

Little Progress Made As US And China Wrap Up 6th Round Of Trade Talks

by Tyler Durden* – ZeroHedge

Following what was, by the FT’s count, the sixth round of cabinet-level trade negotiations since the trade war erupted last year, it appeared that little progress had been made this week, as the US has reportedly been frustrated by China’s unwillingness to offer concessions on the structural reforms that the US has demanded.

According to the FT, Chinese officials this week promised to deliver a full accounting of government subsidies, in accordance with WTO rules, but US officials are skeptical of this commitment. Meanwhile, Robert Lighthizer and his team have reportedly pushed back against a possible deadline extension.

Chinese officials have promised to provide a full list of all central and local government subsidies in accordance with World Trade Organization reporting requirements. They will also take steps to ensure that the subsidies do not violate WTO rules.  Mr Lighthizer’s team, however, is sceptical about such promises. “China’s system is so opaque that you would have to take their word that the WTO notification is complete,” one of his team said. US officials are also frustrated that Mr Liu’s team has offered few market access concessions beyond what Mr Xi spelt out in a speech last April that focused on modest liberalisations in the financial and automotive sectors.

Beijing reportedly believes a meeting between Trump and Xi – which Trump has said would be essential to forging a final agreement – would be the best shot at a compromise that would shrink the US-China trade deficit, but avoid structural reforms to the Chinese economy. Beijing has resisted US demands to improve market access for foreign firms and ditch subsidies because it views these demands as an unwarranted intrusion on Chinese sovereignty.

However, Trump has said he would only accept a “real deal.”

As one analyst argued, delaying the deadline might not be the market panacea that the Trump Administration is hoping for.

According to people briefed on the talks, earlier this week USTR and White House officials were “livid” about leaks, first reported by Bloomberg, that Mr Trump was considering a 60-day extension of the March 1 deadline.  That leeway, if granted, might not be enough to calm investors, some of whom warned that a delay in the decision on trade tariffs would lead to greater uncertainty for companies in China. “The longer you wait, the more sentiment could deteriorate because corporate investment spending is on pause,” said Ben Luk, a global macro strategist at State Street Global Markets.

The interpretation offered by Chinese media was somewhat more charitable, perhaps because China is hoping to convince Trump that enough progress has been made to warrant delaying the next round of punitive tariffs, which would hike the rate on $200 billion in Chinese goods from 10% to 25%. As was expected, President Xi returned the favor to Trump by meeting with the US delegation Friday afternoon, local time.

If Chinese media reports that a memorandum of understanding has been signed – something that was identified as one of the key goals for this round of talks – were accurate, then that could be enough to push Trump to override Lighthizer and delay the next round of tariffs, on the hope that he and Xi can hash out a final deal during a make-or-break summit (possibly at Mar-a-Lago). Meanwhile, the SCMP has reported that talks between the two delegations would continue in Washington next week (in what would be the seventh round of talks), and while “some progress” had been made during this week’s round of negotiations, it was “not enough to seal a final deal.”

After Meeting With US Delegation, Xi Hints That China Won’t Budge On Economic Reforms

In brief remarks to the press following his meeting Friday with Treasury Secretary Steven Mnuchin and Trade Rep Robert Lighthizer, President Xi affirmed that trade talks between the US and Chinese delegations will continue in Washington next week, and that while he hopes the two sides can reach a “mutually beneficial win-win agreement” he insisted that it wouldn’t come at the expense of “certain principles.”

“We are willing to adopt a cooperative approach to resolve and promote an agreement acceptable to both sides. However, cooperation requires certain principles.”

CNBC’s Eunice Yoon recounted the details of the announcement in a series of tweets. She described Xi’s remarks as a reminder that China has “its own bottom line” in talks with the US.

The fact that “very difficult issues remain” suggests that China and the US remain at an impasse on the most contentious issues like structural reforms to the Chinese economy and IP theft. Other media reports affirmed that the US and China have agreed to work toward a memorandum of understanding, and CCTV reports tokenly that China and US reach consensus on main topics “in principle”, but as with all prior negotiations, it is unclear if this represents any real progress. In another bid to try and push the market higher, Chinese media reported that the US and China had reached agreement on main issues “in principle”…which succeeded in pushing US futures higher, though, again, it’s unclear what exactly this means. Xinhua also reported that issues including technology transfers, IP protection, non-tariff barriers, services, agriculture and trade balance have been discussed.

What’s the solution? Why kick the can down the road.

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*Zero Hedge in-house content is posted under the pseudonym “Tyler Durden”, however, the founder and main editor was identified as Daniel Ivandjiiski, Bulgarian born, U.S.–based, former investment banker and capital markets trader, and currently financial blogger, who founded the website Zero Hedge in January 2009, and remains its main publisher and editor.

 

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