Xi Jinping ‘doesn’t intend to follow through’ on trade war talks and local Chinese officials are ‘like mafioso dons’, says top Donald Trump adviser Larry Kudlow

National Economic Council Director Larry Kudlow said Xi was ‘holding the game up’

PUBLISHED : Wednesday, 18 July, 2018, 10:58pm
UPDATED : Thursday, 19 July, 2018, 10:27pm

US President Donald Trump’s top economic adviser blamed China’s President Xi Jinping for stalling talks that could end the US-China trade war, and referred to local Chinese government officials as “mafioso dons”, in an interview on Wednesday.

Larry Kudlow, director of the National Economic Council, made his remarks weeks after the last round of high-level talks between Trump administration officials and Chinese Vice-Premier Liu He that were aimed at averting punitive tariffs that went into effect on July 6.

“I do not think President Xi, at the moment, has any intention of following through on the discussions we made … I think Xi is holding the game up,” Kudlow said at the CNBC Institutional Investor Delivering Alpha conference in New York on Wednesday.

During negotiations in May and June, China offered to import more US soybeans and other products to draw down its trade surplus, but Trump has insisted on better access to Chinese markets for US companies and an end to what the White House calls forced technology transfers.

“You open a company on a joint venture basis in a Chinese province, OK, and because you only own 49 per cent, they own 51 per cent or more, the local party leaders – you know, these are like mafioso dons, I'm told,” Kudlow said.

“You have to go and lay your entire blueprint on the table, including the technology, and they will have their experts open it right up.”

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Kudlow also said that China had not “responded at all, not one basis point, to our request to do something about the theft of intellectual property and the forced divestiture of our technology.”

In addition to better market access for US companies and fewer technology transfer requirements, Trump has said that he wants to reverse the United States’ trade deficit with China, which rose to about US$375 billion last year and is pegged at US$119 billion for the first four months of this year. That number is US$100 billion higher than China’s own calculation.

Trump has already imposed 25 per cent tariffs on US$34 billion of Chinese goods, with tariffs on another US$16 billion expected to follow soon. And if that doesn’t made Beijing back down, he has said, he will target an additional US$400 billion worth of Chinese imports.

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Kudlow suggested that Trump’s aggressive stance toward China has caused confusion among policymakers in Beijing about how to proceed.

“Our sources, now, a lot of sources in China are telling us that the Chinese government realises they're wrong,” Kudlow said. “I hear this repeatedly from my sources; and yet, as of today, they refuse to act on it. They know they're wrong. They know the rest of the world knows they're wrong.”

In calling for a harder stance against China, Kudlow referred to US technology as America’s “family jewels”, echoing language used in a US Defence Department document that has been behind various government initiatives aimed at limiting China’s access to advanced technologies developed by US companies.

Trump used similar language last month to explain his strategy in protecting US intellectual property, which will rely on a strengthened review process undertaken by the Committee on Foreign Investment in the United States (CFIUS), an inter-agency government body controlled by the US Treasury Department.

“We want to have our jewels. Those are our great jewels,” Trump told lawmakers in Washington on June 26. “That’s like United States Steel from 70 years ago, these companies. We have to protect these companies. We can’t let people steal that technology.”

Proposed changes to the way the US government reviews foreign investment gained more urgency owing to the Defence Department’s study, a 49-page document called China’s Technology Transfer Strategy: How Chinese Investments in Emerging Technology Enable a Strategic Competitor to Access the Crown Jewels of US Innovation.

The document was circulated among US lawmakers in February 2017 and made public about a year ago. It was cited as a basis for the Foreign Investment Risk Review Modernisation Act (FIRRMA), which will strengthen CFIUS’ review scope and authority.

The two houses of Congress this month each approved FIRRMA amendments to their respective versions of the annual defence spending bill, and lawmakers are aiming to reconcile the two versions by July 26. FIRRMA will become law once reconciliation is complete and Trump signs the bill.

The Defence Department study warns of “China’s long-term, systematic effort to attain global leadership in many industries, partly by transferring leading edge technologies from around the world”.

“That China will grow to be an economy as large as ours may be inevitable; that we aid their mercantilist strategy through free trade and open investment in our technology sector is a choice,” it says.

“As a result, while this strategic competition with China is a long-term threat rather than a short-term crisis, preserving our technological superiority and economic capacity requires urgent action today.”