A guide to the US-China trade talks: can the two squabbling powerhouses defuse the tension?

While few people expect the two-day Beijing sit-down between delegations from China and the US to end the trade dispute, it could help avert an all-out trade war

PUBLISHED : Thursday, 03 May, 2018, 9:00am
UPDATED : Thursday, 03 May, 2018, 9:29pm

China and the US on Thursday and Friday are to hold high-level and highly anticipated trade talks in Beijing aimed at defusing months of trade tension amid the biggest confrontation in decades between the world’s two largest economies. 

While few people expect the two-day sit-down between the two economic powerhouses to produce a breakthrough deal that would end the ongoing trade tiff, the parley nevertheless could help avert an all-out trade war, according to analysts. 

But the sides’ differing descriptions of the upcoming discussions suggest they have their work cut out for them. 

Liu He, China’s vice-premier in charge of economic issues and the leader of the Chinese delegation, is to “exchange views” on bilateral trade and economic issues with the US delegation led by US Treasury Secretary Steven Mnuchin, according to an official Beijing statement. 

Mnuchin, who will lead a team of US President Trump’s top economic advisers, has said the American officials will be “looking to have a very frank discussion” with China “on trade, on the issues of the trade imbalance”. 

China ‘is ready to fight US to the end’ if a trade war breaks out

The spectre of a US-China trade war loomed when Trump in April proposed imposing tariffs on US$50 billion in Chinese exports and threatened additional tariffs on US$100 billion of goods. China, in response, said it would impose its own tariffs on American products. 

But China also has said it is open to trade negotiations with the US. 

A look at the major questions ahead of this critical meeting:

 

Who will come and whom will they meet in Beijing? 

US Treasury Secretary Steven Mnuchin is heading a seven-member delegation to Beijing. The body of representatives also is to include US Trade Representative Robert Lighthizer, US Commerce Secretary Wilbur Ross, National Economic Council head Larry Kudlow, White House trade adviser Peter Navarro, US ambassador to China Terry Branstad and Everett Eissenstat, the deputy assistant to the president for international economic affairs. 

Meet the team China hopes will ward off US trade war

Critics have dismissed as “uncoordinated” the US group’s mix of China hawks and liberals. 

China has yet to release its delegates list. Liu He, the Chinese side’s leader, was unable to come away with a deal to defuse the tensions after meeting with US officials in Washington for five days in early March. 

Commerce Minister Zhong Shan, International Trade Negotiator Fu Ziying, Vice Finance Minister Zhu Guangyao, and officials from the financial and foreign affairs authorities and the National Development and Reform Commission also are expected to be on China’s delegation. 

President Xi Jinping’s trusted “firefighter”, vice-president Wang Qishan, is expected to meet the Chinese delegation’s seven heavyweights in Beijing. When Liu was in Washington in March he was unable to set up a meeting with Donald Trump. It is unknown whether Xi will meet the US officials in China’s capital city. 

 

What does the US want from China? 

The US’s wish list might include a narrower US-China trade deficit, more access to China’s markets, a level playing field for foreign investors and companies operating in China, the removal of rules guaranteeing the mandatory transfer of technology from foreign companies to Chinese joint venture partners and the removal of so-called unwritten rules. 

But the presence of numerous China hawks in the US delegation makes it unlikely that a tension-ending deal could be reached quickly. 

The Trump administration has been criticised for a lack of consensus on what it wants from China. The talk would be an opportunity for the two sides to explain their positions and avert an all-out trade war while giving Beijing greater clarity on US demands. 

US commerce secretary blames ‘evil practices’ for trade deficit with China

Trump wants China to cut its trade surplus with the US by US$100 billion per year. 

In 2017, China’s trade surplus with the US rose 8.6 per cent, year on year, to US$275.8 billion, or about 65 per cent of China’s total global trade surplus. 

In the first quarter of this year, China’s trade surplus with the US rose by 19.4 per cent compared with a year earlier to US$58.25 billion, including US$15.3 billion in March alone. 

Mnuchin has said he seeks “candid” talks on the trade imbalance, China’s intellectual property practices, bilateral technology cooperation and joint venture issues. 

Lighthizer has said he aims to get China to increase access to its marketplaces rather than push it to change its economic system. 

US investors ‘wary’ of China deals amid trade war threat

If reform becomes a major topic of discussion, the US may demand China provide a specific timetable for opening up its markets further to the West, Chinese analysts said. 

Despite the recent exchange of tit-for-tat tariff threats, the profound topic in the talks will be technology. The US worries about China closing the tech gap through the state-sponsored Made in China 2025 initiative. 

The policy, announced in 2015, highlighted 10 sectors for support on the way to China becoming an advanced manufacturing power, including information technology, high-end machinery and robotics. In addition, China has a separate development strategy for artificial intelligence, published in 2017. 

Companies from the US and other foreign countries fear they will not be able to compete against Chinese companies in advanced manufacturing when they are backed by massive state investment. 

But it is unrealistic that China would yield to US requests and revamp its technology pursuits. 

 

What does China want and what can it offer the US? 

China may expect the US to cease punitive action, such as the imposition of additional tariffs on up to US$150 billion worth of Chinese products as a result of the findings of the Trump administration’s investigation under Section 301 of the United States Trade Act. China also may also want the US to loosen its control over its technology exports and team up with China in a technology cooperation pact. 

Although China might agree to cut the trade deficit with the US, it is unlikely to meet Trump’s demand for a US$100 billion reduction. While China could opt for the easier route of agreeing to buy more American products, it would be hard for Beijing to back off significantly on its hi-tech ambitions or change its industrial policy to any great extent, sources said. 

Beijing could give the US details of the opening-up plan Xi announced in Boao last month related to financial services, the making of cars, airplanes and other goods, removing equity controls for foreign companies, restricting inbound investment, stepping up intellectual property protection and expanding imports. 

 

What could be the outcome of the two-day talks? 

The talks are expected to be tough. In a departure from common practice for high-level inter-governmental meetings, it was reported that neither country’s working-level officials had held preparatory talks on specific issues and possible outcomes ahead of the parley. 

Expectations are low for a substantial deal that would avert an all-out trade war. But the novelty and importance of the occasion – a rare meeting of top economic and trade officials from both countries laying out demands and presenting offers – may help to ease the tension. 

“Let’s get past the tariff threats,” said Jake Parker, vice-president of China operations at the US-China Business Council. 

“It is unlikely that the issues will be resolved in this meeting, but we hope the two sides will be able to lay out a path for continued negotiations that will lead to a solution and avoid tariffs and other sanctions. 

Mnuchin ‘cautiously optimistic’ ahead of China trade talks

“That would be a positive outcome,” he said. 

The business council “has been messaging over the past two months to high levels of both governments that it is time to sit down and negotiate a solution to improve IP protection and end forced tech transfers in China,” Parker said. 

Both sides have played down the odds of seeing a big deal struck at the meetings. 

Mnuchin has said he is “cautiously optimistic” about reaching a deal with China. 

China’s Ministry of Foreign Affairs has said it was unrealistic to expect one discussion to solve the trade row given the cost advantages that enterprises from China and the US enjoy because of their respective large operating scales.

The complexity of bilateral ties also complicates the likelihood of one meeting producing a quick-fix solution, according to the ministry.

 

Will the talks in Beijing end the economic cold war? 

The Trump administration has viewed China’s leveraging of state capitalism to develop its economy as a challenge to the US way of doing business. The growing consensus in China is that the Washington-Beijing economic rivalry could last for years, underscoring the deep differences in the countries’ economic systems. 

The office of the US trade representative is to hold a hearing on May 15 on the list of more than 1,300 Chinese products slated to be hit with punitive tariffs based on the results of the US government’s investigation under Section 301 of the US Trade Act into China’s purportedly unfair trade and IP practices. 

Mnuchin is moving to restrict Chinese investment in sensitive sectors of the US economy. New legislation is making its way through the US Congress that would strengthen scrutiny of Chinese investment in areas deemed to be a national security concern. 

Trump also has instructed his team to study a proposed US re-entering of the Trans-Pacific Partnership, as the president looks for ways to pressure China to back down from its threat of new tariffs on US exports. 

Expect tough talk from US trade hawks in China, not an end to the row

All these developments are unlikely to stop after the Beijing meeting. But many analysts agree the talks could buy time for China to hold further discussions on the US tariffs and other trade action.