Trade-offs or trade war? China ‘could be forced to compromise’ with the US

China might be forced to compromise into opening its markets or ramping up imports of American products as it tries to defuse rising trade tensions with the United States, analysts said.

Another option may be to cut import tariffs on US products entering China, a move that could go some way to meeting US demands to narrow the trade gap between the two countries.

Trade tensions between Beijing and Washington have soared in recent weeks, with both sides proposing tariffs on imports. 

On Thursday, China went a step further, raising a formal complaint with the World Trade Organisation over the US’ decision to slap duties on Chinese steel and aluminium products.

But US and Chinese officials are still trying to play down the possibility of a full-scale trade war. 

Larry Kudlow, the White House’s National Economic Council director, said on Wednesday that both countries still had time to work out their differences.

And after a meeting with acting US Secretary of State John Sullivan, Chinese ambassador to the US Cui Tiankai underscored the need to remain in close communication to restore fairness and balance to economic ties. 

“We will always stand for consultation and negotiation,” Cui said. “Negotiation would still be our preference, but it takes two to tango.” 

Washington is demanding that Beijing lower tariffs, expand imports from the United States, and stop forcing technology transfers from US companies to their local counterparts.

Chinese analysts said Beijing could agree to some of the demands by, for example, buying more computer chips from the US, but added that China was not driving the direction of relations.

Renmin University international relations professor Shi Yinhong said such compromises might be bigger than before but they would not prevent the threat of future demands from the US.

“China is under huge pressure and could make unprecedented compromises, which may further encourage the administration of US President Donald Trump to demand more in the future,” Shi said.

The US has accused China of imposing foreign ownership restrictions, such as joint venture requirements and administrative licensing processes, to pressure US companies to transfer technology to Chinese partners for years.

It ended a six-month investigation under Section 301 of the Trade Act of 1974 into what it claimed were unfair intellectual property practices and industrial policy, and released proposals on Tuesday to slap 25 per cent tariffs on more than 1,300 Chinese products with an export value of US$50 billion, including hi-tech products that are top priorities in Beijing’s industrial modernisation plan.

China fired back on Wednesday, announcing plans to impose 25 per cent tariffs on more than 100 US products, including soybeans, cars and aircraft.

China has long said it is committed to opening its markets and levelling the playing field for all types of commercial activity but the foreign business community and observers say progress has been disappointing.

Shen Dingli, from Fudan University’s Centre for American Studies, said China should take the chance to modify the “predatory” way it had developed its economy and fostered technological prowess. 

Shen called for a gradual reduction in state invention in business and a timetable to cut government subsidies for state firms.

Jake Parker, US-China Business Council vice-president of China operations, said the Trump administration needed to be clear about what it wanted from China.

“In particular, we want to see what specific actions the administration wants China to take to improve IP protection and end forced technology transfer. What does success look like? The administration needs to spell this out,” Parker said.

William Zarit, chairman of the American Chamber of Commerce in China, said the US administration apparently felt the pressure of tariffs would move Beijing to address American business concerns on the lack of a level playing field and reciprocal treatment in China.

“However, blunt and often counterproductive import tariffs may not effectively bring about the desired changes in China’s unfair industrial policies,” Zarit said. 

“We hope that both governments take a solution-oriented approach based on free and fair market access to resolve the current trade disagreements.”

Additional reporting by Lu Zhenhua and Sarah Zheng