Chinese leaders ‘absolutely confused’ by Trump’s demands on trade

This story is published in a content partnership with POLITICO. It was originally reported by Victoria Guida on politico.com on June 23, 2018.

Donald Trump has called on China to capitulate to U.S. demands on trade. The problem is nobody knows exactly what Trump actually wants – including the Chinese.

One week, he condemns threats to American national security interests and the next, agrees to lift a ban on doing business with Chinese telecom giant ZTE. He rails about the U.S. trade deficit with China, then dismisses Beijing’s offer – negotiated by his own officials – to boost its purchases of U.S. goods by billions of dollars.

Beyond the feints and jabs, he’s raised so many different issues that it’s hard to know what his priorities might really be.

The strategy is straight out of “The Art of the Deal”: “I aim very high, and then I just keep pushing and pushing and pushing to get what I’m after.” But some doubt that approach translates to negotiating with a global superpower. By all accounts, it has left the Chinese increasingly mystified about what Trump really wants at a pivotal moment when the world’s two largest economies are teetering on the edge of sustained trade warfare.

“They’re absolutely confused,” Derek Scissors, a resident scholar at the American Enterprise Institute, said of the Chinese.

Without clear demands, he argued, Beijing is unlikely to offer much. “The concession has to get them something. And they don’t know what they’re going to get because the U.S. doesn’t have a strategy.”

Chinese officials, for their part, are increasingly blunt about their frustration.

“We appeal our American interlocutors to be credible and consistent,” Li Kexin, minister at the Chinese embassy in Washington, said in a speech Tuesday at the Institute for China-America Studies. “When you agree, you mean it.”

And on Friday, Gao Feng, spokesman for China’s Ministry of Commerce, criticized the U.S. as “capricious.”

Trump’s aggressive approach is a reversal from more than a decade of U.S. policy toward China, which involved negotiating on a suite of business issues every year to make incremental progress. Any gains were secured largely by convincing Beijing that a more open economy was ultimately in its best interests – a tactic that worked very slowly and only to a point.

The president’s willingness to antagonize China more directly has largely been embraced by the U.S. companies and workers desperate for quicker and more substantial results. But veterans of international negotiations are skeptical that negotiations will succeed unless they’re more clearly focused.

“Yes, they have a plan. No, I don’t think it will work,” said Bill Reinsch, a senior adviser at the Center for Strategic and International Studies. “The plan is always push harder, demand everything and offer nothing.”

The underlying structure of China’s economy is the cause of many of U.S. companies’ most intractable complaints, something that won’t change in a matter of weeks or even months.

Beijing makes U.S. companies jump through more hoops than domestic companies. It conducts cyber espionage and steals U.S. trade secrets and intellectual property, like patents. And the Chinese government subsidizes its companies on a grand scale, guaranteeing that they can sell goods below a market-set price.

All of these policies have been identified by the Office of the U.S. Trade Representative as the impetus for new tariffs set to be imposed on $50 billion in Chinese goods. But across the ideological spectrum, China watchers are worried the president’s laser-like focus on the trade deficit may lead him to lose focus on seeking structural changes to the Chinese nonmarket system.

“This is a multiyear process that involves a lot of pain,” Scissors said. “If you don’t want to face the pain and take the time, then don’t do it.”

Chinese officials have similarly cautioned that this negotiation may take years.

“Let’s talk about it, no matter on trade deficit or structural issues,” Li said.

Adding to the confusion, senior administration officials have said they don’t know exactly what Trump will decide to say or do on trade at any given moment. That uncertainty has led advisers to compete for his attention in a bid to sway him, which leads to varied tactics and mixed messaging.

Officials like National Economic Council Director Larry Kudlow have indicated the goal is to knock down barriers to U.S. exports, such as tariffs. But under the rules of the World Trade Organization, China is bound to give the United States the same tariff treatment as every other WTO member, making negotiations on the reduction of duties difficult.

Meanwhile, the new U.S. tariffs, aimed at extracting concessions from the Chinese, were designed largely as a response to intellectual property theft, with a nod to China’s policy of propping up companies in particular sectors.

China responded to the announcement of those tariffs by scheduling duties on U.S. goods that mirror the size and timing of the administration’s action. On Tuesday, Trump responded by threatening to slap tariffs on as much as $450 billion in Chinese goods. The administration is also planning next week to place new investment restrictions on the Asian nation.

“Increasingly, I’ve been asked by fairly high-level folks [in China] to just explain what is going on,” said Taiya Smith, who worked under former Treasury Secretary Hank Paulson to develop formalized trade talks between Washington and Beijing, then called the Strategic Economic Dialogue.

In a press call on Tuesday, White House trade adviser Peter Navarro criticized Beijing’s offers thus far. “If they thought that they could buy us off with a few extra products sold and allow them to continue to steal our intellectual property and crown jewels, that was a miscalculation,” he said. “We hope going forward, there is no more miscalculation.”

So what concessions might be enough? The clearest document outlining U.S. demands looked more like asks in negotiations on a comprehensive free trade agreement than a targeted deal aimed at heading off punitive tariffs.

The administration in May said it wanted China to commit to reducing the trade deficit by $200 billion by 2020. It also asked China to stop subsidizing high-tech sectors like robotics and alternative energy vehicles identified in its China’s strategic economic plan, cut tariffs on “all products in non-critical sectors” to levels at or below U.S. duties and assure that it would not challenge U.S. actions taken in intellectual property disputes.

Robert Lighthizer, Trump’s chief negotiator, said at the time that it wasn’t his goal to “change the Chinese system,” despite his long list of criticisms of that system.

“If they want to do it, that’s fine, but I have to be in a position where the United States can deal with it, where the United States isn’t a victim of it,” he said.

A source familiar with the negotiations said Lighthizer and Navarro both seem to be of the view that China is not going to change, and so they’re taking action to protect the U.S. market. It’s possible, the source added, that a lot of the new trade restrictions will simply remain in place.

Trump himself has railed repeatedly against the massive trade deficit between the U.S. and China, which stood at $566 billion in 2017. He’s also nodded to China’s practice of forcing companies to hand over valuable technology and data.

“We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.,” Trump tweeted in April. “Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”

But he muddied the waters last month by offering to strike a deal to save embattled Chinese telecom giant ZTE, which policy experts argue could’ve been used as an example to Chinese companies that break the law.

The Commerce Department in April imposed a seven-year ban on American companies doing business with ZTE, alleging the company had conducted illegal sales to North Korea and Iran. The ban threatened to shutter the company.

But then Trump tweeted that he and Chinese President Xi Jinping were working on a way to get ZTE “back into business, fast,” adding, “Too many jobs in China lost.”

Sen. Mark Warner (D-Va.) criticized the move as inconsistent with Trump’s effort to get tough on China. “While we simply cannot let China’s unfair trade practices go unchecked, this President’s erratic approach to resolving this issue gives me pause,” he said in a statement.

The Senate has since moved to block Commerce’s deal with ZTE.

Beyond uncertainty about the administration’s goals, U.S. business groups also aren’t pleased with the approach taken by the administration — imposing a lot of new tariffs — in a bid to spur change.

“One way we’ve been putting it lately is: right question, wrong answer,” said Josh Kallmer, senior vice president of global policy at the Information Technology Industry Council.

“We’ve actually been really supportive of the administration for undertaking the investigation and raising this to a level of seriousness that past administrations have not,” added Kallmer, a former career official at the USTR with experience in negotiating with China.

But “the path they’ve gone on, we’ve found it to be pretty counterproductive and bordering on irresponsible,” he added, saying tariffs are merely going to hurt American standards of living by raising prices.

He argued instead that the U.S. should be focused specifically on intellectual property theft, and it should recruit the help of U.S. allies like Canada, Europe and Japan, rather than further antagonizing those countries.

“There’s no question that the attorneys and key policy officials at USTR are seeing the big picture,” Kallmer said. “But then when it gets to be time for political-level officials to make a judgment about what to do, I think they are being selective and incomplete. They’re really taking their eye off the ball.”