China-US relations

Communication breakdown risks escalating Sino-US trade row, say former officials

Washington’s tariffs on solar panel imports are the latest instance of its hardening stance towards Beijing. But the Davos summit is seen as offering a chance for the two sides to find common ground

PUBLISHED : Tuesday, 23 January, 2018, 10:13pm
UPDATED : Tuesday, 23 January, 2018, 11:38pm

China and the United States are facing a breakdown in communication as trade tensions escalate and Washington mulls taking increasingly harsh measures against Beijing, warn former US trade officials.

The US Trade Representative Office said late on Monday it would impose tariffs of up to 30 per cent on foreign solar panels, specifically blaming China for its “artificially low-priced” export of the technology. It also announced up to 50 per cent penalties and import quotas on foreign-made washing machines.

China’s Commerce Ministry hit back on Tuesday, expressing “strong discontent” over the steps and blamed the US for “abusing trade remedy measures” and “deteriorating [the] global trade situation”.

The World Economic Forum which started on Tuesday in Davos, however, might offer a chance for senior officials from both countries to discuss trade issues, observers said.

Liu He, the right-hand man of Chinese President Xi Jinping, is leading a delegation to the Swiss Alps resort, while US President Donald Trump and Commerce Secretary Wilbur Ross are scheduled to deliver speeches at the gathering this week.

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Speculation that the world’s two biggest economies are headed towards a possible trade war has gathered steam since the US suspended the Comprehensive Economic Dialogue late last year and as Trump continues to lash out against what he views as China’s unfair trade practices.

“As far as we’ve been able to tell, there has been a strong debate going on at the most senior level in Washington on how to deal with China on trade issues,” said Timothy Stratford, a former assistant US trade representative.

“One reason that there has not been a lot of communication between the two countries on these issues is that the administration is having a debate and working out what they should do. It is hard to communicate until they resolve that very difficult question,” said Stratford, now a managing partner at the Beijing office of the Covington and Burling law firm.

Another clue about US intentions could come after Trump delivers his state-of-the-union speech on January 30. A US business representative, speaking on condition of anonymity, said Trump would release a report following his address on the findings of an investigation into China’s alleged intellectual property thefts, under Section 301 of the Trade Act.

Further separate actions, including tariffs on other Chinese exports and investment restrictions on Chinese firms seeking to access the US market, are also expected.

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“I suspect there are going to be actions under [the] 301 investigation, which will be much more significant to China,” said Wendy Cutler, vice-president of the Asia Society Policy Institute and a former acting deputy US trade representative.

“From what I heard so far, it is a pretty comprehensive review and investigation, and the administration may take significant actions such as investment restriction and tariffs.”

It is widely believed in US government and foreign company circles that the business environment in China is deteriorating and investment barriers have increased.

“There is a consensus that what we have done today really hasn’t worked to open China’s market to US export and investment,” Cutler said. “But the next question is, so what should we do?

“And there is a variety of opinions, but at least the administration is moving toward using trade laws to address those problems.”

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When asked whether Davos could provide a platform for taking up the issue, Cutler said delegates from both sides were likely to hold discussions.

The US Trade Representative Office, under the lead of Robert Lighthizer, has adopted a harsher tone towards Beijing. It has labelled as a mistake US support for China’s accession to the World Trade Organisation in 2001 and called senior-level dialogue ineffective.

But the two former US trade officials called for measured actions on Washington’s part to prevent tensions from escalating into a trade war.

“One of the benefits I’ve always found on those dialogues – in addition to the actual meetings – was all the conversations on the sidelines … So I am concerned that maybe there isn’t enough dialogue and enough communications between both sides at all levels,” Cutler said.

“The more you talk, the better things are. It doesn’t mean that you can solve some of the problems. It doesn’t mean the US administration will not take trade actions. But it is important for both sides to have informal and direct communication to express their concerns and preview what measures they may take in the near term,” she said.

Added Stratford: “Hopefully both sides would communicate and explain what they are doing and why they are doing it, so that each side can respond in a measured way and not take extreme actions that would make the situation worse.”