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US-China trade war: All stories

No big deal: Trump-Xi talks at G20 unlikely to produce breakthroughs, analysts say

  • US markets close slightly lower after investors seem to agree that enthusiasm about discussions is premature
  • Any negotiations, even if they resolve trade dispute, won’t address larger issues about technology transfers and espionage
PUBLISHED : Saturday, 03 November, 2018, 5:51am
UPDATED : Saturday, 03 November, 2018, 10:38pm

Hopes for a US-China rapprochement at the G20 meetings in Argentina at the end of the month have faded quickly.

Optimistic messaging by US President Donald Trump and China’s state media about his plans for a meeting and dinner with Chinese President Xi Jinping at the forum quickly gave way to scepticism among US analysts on Friday.

Technology, in all the ways it permeates the US-China relationship, is at the centre of the most serious differences, the analysts said. Contentious issues, they note, include US allegations of Chinese cyber-espionage; Beijing’s industrial policy; new cybersecurity standards being rolled out in China; and a heightened scrutiny of Chinese entities involved in tech research in America.

“If you look at Trump administration policy over the past several weeks, there’s been this steady drumbeat focused on Chinese influence campaigns and on China becoming leaders in technology in ways that will undermine American leadership,” said Samm Sacks, a senior fellow at Washington-based Centre for Strategic and International Studies (CSIS).

“It’s about espionage, it’s about market access, it’s about censorship,” Sacks said. “Anything that’s going to be announced by Trump [at G20] is going to be peripheral to that.”

Investors appeared to agree that the enthusiasm over reports about the planned Xi-Trump summit meeting was premature. US stocks shrugged off the news of a potential trade deal as the S&P index erased a rally in the early session Friday to drop 0.6 per cent to 2,723, while the technology-heavy Nasdaq index shed 77 points, or slightly more than 1 per cent.

In a discordant counterpoint to the reports of Trump’s “good conversation” with Xi on Thursday about G20, US Attorney General Jeff Sessions lashed out the same day at what he called China’s attempts to steal US technology.

Trump to host dinner for Xi after G20 summit

“Enough is enough, we’re not going to take it any more,” Sessions said after the Justice Department accused Chinese state-owned Fujian Jinhua Integrated Circuit Co, its Taiwanese partner United Microelectronics and three individuals of stealing trade secrets from Micron Technology, America’s largest memory-chip maker.

“This is just the beginning” of efforts to crack down on cyber-espionage originating in China, John Demers, assistant attorney general for national security, said in an announcement two days earlier, accusing 10 Chinese agents of trying to steal aviation technology from US companies. That case is the third such indictment in less than two months.

The recent indictments of cyber-espionage are “meant to build momentum behind a more concerted push by the Department of Justice and other US agencies against illicit acquisition of technology by Chinese actors, and to call out China for violating the 2015 Obama-Xi agreement banning government-supported cyber theft of intellectual property for commercial gain”, New York-based consultancy Eurasia Group, said in a research note.

“Protecting the US national security innovation base and technology leadership is now a high priority for key branches of the US government,” the Eurasia report said.

The flurry of indictments may well have been the spur needed to bring about the prospect of a face-to-face meeting between the two countries’ leaders, said Derek Scissors, resident scholar and China expert at the Washington-based American Enterprise Institute.

Beijing tells Washington to provide ‘concrete evidence’ China is stealing trade secrets

“The step up in the last 10 days is what got the Chinese to be more willing to make a deal that [Trump] started crowing about,” said Scissors. “As soon as the US starts targeting firms, the Chinese up their pressure, their offer, whatever it is.”

For weeks, Trump has repeatedly and publicly said he is not ready to negotiate with Beijing, while suggesting China officials are desperate to make a deal.

He struck a decidedly different tone this week, telling crowds at a political rally in Missouri on Thursday that “great things are going to happen over the next short period of time”.

“I spoke to President Xi,” he said at the rally, held on behalf of Republican US Senate candidate Josh Hawley. “Great guy, great man from China. And he is the boss. He’s the head of China. We spoke and I said: ‘Look, we have to make a fair trade deal’.”

While Trump’s top economic adviser Larry Kudlow rejected on Friday reports by Bloomberg that the president had ordered his cabinet to draw up a deal for his meeting with Xi, Trump told reporters outside the White House on Friday afternoon that “we’re getting much closer to doing something” and that “I think we’ll make a deal with China”.

“We have a pattern that, when the president talks to Xi Jinping, or Vladimir Putin, or Kim [Jong-un], he gets a little carried away,” Scissors said.

Trump didn’t ask for China trade plan draft, Kudlow says

Following a conversation with Xi in May, Trump, citing concern for job losses in China, put the wheels in motion to lift a US Department of Commerce ban on Chinese telecom giant ZTE from acquiring US tech components. That decision to lift the ban was met with bipartisan opposition.

“He seems to react as if ‘I had a call with my friend: we’re going to work everything out’, like it’s a real estate deal in Manhattan,” Scissors said. “I think that’s completely inappropriate.”

Adding to the scepticism that the two leaders could make a substantive deal that would address the fundamental issues fuelling the trade dispute, Scissors characterised the meeting as more of an opportunity for de-escalation, and suggested that continuing to challenge China on intellectual property (IP) theft would squash the prospect of a long-term deal.

“They’re not going to sit down at dinner and scrawl out a US-China trade treaty where every issue is taken care of,” Scissors said. “There’s going to be a ceasefire.”

“It’s incompatible with the deal surviving that the US continues forward with [challenging China on IP theft] very far.”

US secretary of state warns China to ‘behave like a normal nation’

Raising the stakes of Trump’s discussions with Xi is the fact that any concession to Beijing on matters of IP theft will be met with staunch opposition from Democrats, who have largely supported the president’s strong-arm approach to China over the course of the unfolding trade war.

In the wake of midterm elections that are expected to see Democrats take control of the House of Representatives, keeping them in agreement on matters of foreign affairs and national security could become crucial.

Under such political pressure, observers expect Trump to declare victory following discussions with Xi, no matter the substance of any results.

“Whatever type of victories – whether they are small or large – that Donald Trump gets, even if others may not perceive them as victories, he almost certainly is going to trumpet them as victories,” said negotiating expert and author Marty Latz, adding that Trump’s win/loss mindset was a “hallmark of his entire career”.

“He always views things as whether or not he is going to be personally perceived walking away from the deal as winning,” said Latz, who studied Trump’s approach to negotiations for his book The Real Trump Deal: An Eye-Opening Look at How He Really Negotiates.

Though Trump has focused his rhetoric on the trade deficit between the two countries, his administration has also pushed Beijing to abandon its “Made in China 2025” programme, which provides massive financial support for domestic innovation in technology.

As a core facet of the country’s ambitions, however, significant concessions to the programme are unlikely. In the words of Scissors, “Made in China 2025 will be whatever it was that China wanted, with different wording”.

Meanwhile, the Information Technology Industry Council, a group representing Apple, Google, Samsung and other global technology giants, is warning US government officials that China’s new cybersecurity law is a bigger threat than Made in China 2025.

China’s cybersecurity law was enacted in June 2017, but associated regulations have been published by various governing bodies since then, setting punishments including fines for individuals of up to 100,000 yuan (US$14,600) for not properly censoring content, and the revocation of permits and business licences.

The programme is a set of guidelines and does not spell out punishments for companies or individuals.

China’s cybersecurity standards “are going to be an important area where you’re going to see barriers and different treatment”, said Sacks of CSIS. “Over 300 cybersecurity standards have been released since the drafting of the cybersecurity law began.”

“The reality is that any company relying on an ICT [information and communications technology] network means you’re going to have to go through various audits and testing. And if you don’t get certification, that’s a market access barrier.”