‘It’s not over yet’: key sticking points remain for US and China on trade, analysts say 

Expect more confrontation over China’s industrial policies and technology investment, they warn

PUBLISHED : Sunday, 20 May, 2018, 10:02pm
UPDATED : Monday, 21 May, 2018, 1:10pm

Fundamental disputes between Beijing and Washington over China’s industrial policies and technology investment remain unresolved, even though the two sides made progress in the latest round of trade talks, analysts have said.

They have also warned there is still a risk of a trade war between China and the United States, and that Beijing should be prepared.

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China agreed to “significantly increase” imports of American goods and services, including “meaningful increases” in US agricultural and energy products, which would “substantially reduce” the US trade deficit with China, according to a joint statement on Saturday. 

It followed two days of talks in Washington between teams led by Chinese Vice-Premier Liu He and US Treasury Secretary Steven Mnuchin.

But the statement did not give any specifics as to the exact products, or the degree by which the deficit would be narrowed, and said the US would send a team to China to work out the details.

Speaking in a Fox News interview on Sunday, Mnuchin said US plans to slap punitive tariffs are “on hold” following the most recent round of talks.

Mnuchin said China could boost imports of agricultural goods by up to 40 per cent this year and expected a “doubling” of US energy product purchases, to as much as US$60 billion, in three to five years.

Liu told state news agency Xinhua that the two countries had agreed they would not engage in a trade war and both sides would halt the punitive tariffs they had threatened to impose. 

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He said they would also step up trade cooperation in the areas of health care, hi-tech products and finance, without elaborating.

Beijing and Washington have also agreed to encourage two-way investment, the joint statement said, and China agreed to revise its rules on intellectual property protection.

But the statement did not mention Washington’s seven-year ban on selling US components to Chinese telecoms firm ZTE, which US President Donald Trump has said he would revisit, or Beijing’s state-sponsored industrial plans such as “Made in China 2025” to support its tech sector – both flashpoints between the world’s two biggest economies.

Mnuchin clarified Trump’s position on ZTE by saying the matter is “completely independent” of the trade talks.

“Nothing’s changed – and that’s probably the real consensus between the two delegations. But the joint statement provides an important reprieve that each side badly needs,” said Zha Daojiong, a professor with the School of International Studies at Peking University. 

“In the US, there’s significant opposition to Trump’s China tariffs. In China, after the eight-point list of demands from the US team two weeks ago, it is now paramount not to be seen to have caved in. 

“The US side is likely to be emboldened about punishing China,” he said, adding that he expected more conflict over trade and investment between the two countries.

Liu went to Washington last week to continue talks that began when Mnuchin, US Commerce Secretary Wilbur Ross, White House trade adviser Peter Navarro and US Trade Representative Robert Lighthizer travelled to Beijing earlier this month.

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Liu told Phoenix TV that his meeting with Trump on Thursday was extended from a 15-minute “protocol meeting” to 45 minutes of “talks of substance”. He did not meet Trump during his first trip to Washington in early March.

It would take time to resolve the structural problems in the China-US trade relationship, Liu told the Hong Kong broadcaster, and he did not rule out “new troubles” in the future, calling for both sides to stay calm and continue dialogue to address the issues.

While Washington has paused its tariff action against China, Mnuchin said in Sunday’s interview that Trump “could always put the tariffs back on if China doesn’t go through with their commitments”.

China on Friday denied media reports that it had offered Washington a package of measures to cut its trade surplus with the US by US$200 billion a year. China’s trade surplus with the US hit a record US$375 billion last year.

Narrowing that gap is a priority for Trump, and Washington asked Beijing to reduce it by at least US$200 billion by the end of 2020 in the first round of talks two weeks ago, according to a draft framework of US demands.

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But Shi Yinhong, a professor of international relations at Renmin University, said a significant increase in imports over a short period of time could hurt China’s trade structure, as well as its relations with other trading partners.

China could reduce its trade surplus with the US and open up its markets but it would not make any concessions on its goal of becoming a technology superpower through Made in China 2025, he said.

“It’s not over yet – this truce won’t last more than six months. Trump will start a second round of trade confrontation and we should be fully prepared for it.”

It is not clear whether the consensus reached in Washington will delay the introduction of measures to limit Chinese investment in the US technology sector, which the Treasury Department is expected to unveil this week. 

But it is not just Trump who is facing criticism for backing out of free-trade pacts and casting shadows over global trade. Beijing has also come under fire from some quarters.

“It sounds like much ado about nothing, because China’s major trading partners have heard these vague commitments from the Chinese side many times before,” said an European diplomat who requested anonymity.

Suisheng Zhao, director of the University of Denver’s Centre for China-US Cooperation, said both sides wanted to reach “some kind of deal”.

“People were expecting, if not some overall agreement, then at least some kind of announcement saying the consultations would continue. If these negotiations drag on, I don’t see that as a bad thing because there’s no quick solution for their outstanding issues at this moment,” Zhao said.

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Zheng Yongnian, director of the East Asian Institute at the National University of Singapore, told a forum in Beijing on Sunday that China should not be too optimistic about the initial agreement.

The West was on “high alert” about China, Zheng said, and the US was launching a technology cold war against the country.

“This is just the beginning,” he said. “China may face more difficulties as it tries to develop its hi-tech sector.”

Additional reporting by Catherine Wong