U.S. and China swap hard-line lists of demands at trade talks in Beijing

Two days of inconclusive U.S.-China talks ended here Friday amid signs that the Trump administration is demanding dramatic concessions that challenge core elements of China’s economic system and its ambitions for future development.

China said “big differences” remained as a high-level U.S. government delegation headed home, although consensus had been reached on some issues.

Given China’s equally uncompromising stance, it was unclear where the two sides had found common ground. U.S. envoys are likely to have met stiff resistance, given their demands for fundamental revisions in how the Chinese leadership manages foreign trade and its domestic economy. The demands included a $200 billion cut in the U.S. trade deficit with China by 2020.

Chinese negotiators presented their own hard-line terms for a reshaped trade relationship, demanding the U.S. drop a complaint over China’s licensing terms for foreign patent holders and immediately designate China a market economy, which would give it easier treatment under routine U.S. trade enforcement actions.

The dueling negotiating menus represented “maximalist” positions that may have made eventual agreement more difficult, said Scott Kennedy, who directs a project on the Chinese economy at the Center for Strategic and International Studies.

“This could be remembered as the day that the U.S. and China found out it wasn’t misunderstandings causing their difficulties, ” Kennedy said. “The trouble now may be that they understand each other all too well.”

With the U.S. team, including Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer, en route to Washington, the White House released a statement calling the talks “frank.”

The White House added that more fair trade would benefit both countries as well as the global economy. “There is consensus within the administration that immediate action is needed to bring changes to (sic) United States-China trade and investment relationship,” the statement said, an apparent allusion to reports of divisions within the U.S. team between hard-liners and trade advocates.

The U.S. briefing paper, which was presented to Chinese officials before the talks, said that “the United States-China trade relationship is significantly unbalanced” and “immediate” action is needed to reduce the U.S. trade deficit.,The paper appeared on the social media site Weibo before being deleted by Chinese government censors.

The meetingsmarked an attempt by the Trump administration to leverage changes from China without sparking a potentially disastrous trade war, after threatening to impose tariffs on up to $150 billion in Chinese imports.

U.S. negotiators entered the talks with a sweeping set of demands that called for China to drop its tariffs to match lower U.S. levels; eliminate limits on U.S. investment in key industries; end state-sponsored cyberattacks on U.S. targets; strengthen intellectual property safeguards and halt subsidies for several advanced technology industries.

“Each side has staked out positions the other side will not reach,” said John Frisbie, president of the U.S.-China Business Council. “The gap’s pretty wide right now.”

The talks ended with no details on next steps. But some analysts predicted tough bargaining in the weeks to come.

“The Trump Administration is making very strong demands upfront which is likely to offend the Chinese,” said Andrew Collier, managing director of Orient Capital Research in Hong Kong. “It may take them some time to formulate an answer, as they don’t react well to ‘in your face’ demands, particularly from the U.S.”

Chinese President Xi Jinping is unlikely to give ground on subsidies for key technology industries, which can be difficult to measure and which involve China’s ambitions to match the world’s most advanced economies, Collier said.

As he headed into the second day of meetings, Treasury Secretary Steven Mnuchin told reporters that the two sides were having “very good conversations,” according to the Reuters news agency. 

But it was not a surprise to learn later Friday that the talks had ended without a deal that addresses U.S. concerns over China’s trade and investment practices, as well as over state subsidies to high-tech industries.

“The two sides fully exchanged views on expanding U.S. exports to China, bilateral trade in services, two-way investment, protection of intellectual property rights, resolution of tariffs and non-tariff measures, and reached consensus in some areas,” the state news agency Xinhua reported. 

“The two sides recognized that there are still big differences on some issues and that they need to continue to step up their work and make more progress,” it said.

The United States is seeking fundamental changes to the way China’s Communist Party runs its economy, taking aim at a massive state-subsidized effort to achieve global dominance in advanced technologies, known as “Made in China 2025.”

Chinese experts say Beijing is determined not to give any ground over that issue, and that is likely to be the source of at least some of the differences between the two sides.

“Asking China to stop its state industrial policy is, to some degree, a violation of China’s sovereignty, and it’s impossible for China to accept it,” said Lu Xiang, an expert in Sino-U. S. relations at the Chinese Academy of Social Sciences in Beijing.

Xinhua reported that two sides agreed to establish a “working mechanism” to maintain close communication on the issues discussed in the talks. 

In a document supplied by the U.S. delegation to the Chinese side ahead of the talks, and which quickly leaked to Weibo, Washington asked Beijing to take action to cut the $375 billion U.S. trade deficit by $100 billion over the next 12 months, and by another $100 billion by the end of 2020, chiefly by importing from the United States.

The document, the authenticity of which was confirmed by a U.S. official, was cast as a draft agreement provided ahead of the talks “solely to help facilitate candid and constructive exchanges between the two sides.” 

In it, the U.S. delegation asked that China immediately “cease providing market-distorting subsidies and other types of government support that can contribute to the creation or maintenance of excess capacity in the industries targeted by the Made in China 2025 industrial plan.”

It also demanded that China strengthen the protection of intellectual property rights and take “immediate, verifiable” steps to halt some of the practices identified in U.S. allegations against the Chinese: notably commercial cyberespionage and the theft of intellectual property and trade secrets. 

It also asked China to ensure that U.S. investors in China are “afforded fair, effective and nondiscriminatory market access and treatment,” and that China reduce “tariffs on all products in noncritical sectors to levels that are no higher than the levels of the United States’ corresponding tariffs.”

Wei Jianguo, a former vice commerce minister, said it was beyond the Chinese government’s reach to engineer such a rapid rise in imports and reduction in the deficit, since those are commercial decisions largely decided by market forces.

“The U.S. side might not understand the Chinese government and think it has unlimited power to make any decision. It’s not like that,” he said.

Yu Miaojie, professor at Beijing University’s National School of Development, said the document showed a lack of sincerity from the U.S. side and placed demands that were outside the Chinese government’s “acceptable range.”

But experts agreed that it was nevertheless positive to see both sides talking, rather than threatening each other.

“It’s great that they have come to negotiate, and it’s even better that now both sides have met and fully exchanged views,” said Wei.

Underlining the tensions, the Commerce Department reported Thursday that the U.S. merchandise trade deficit with China widened by 16 percent in the first three months of this year, to $91.1 billion. 

U.S. sanctions against leading Chinese telecom equipment manufacturer ZTE have also cast a significant shadow over the trade relationship in recent weeks. 

Last month, the Commerce Department barred U.S. companies from exporting to ZTE for seven years, saying the company has violated the terms of a previous settlement of criminal and civil charges for making shipments to Iran and North Korea. 

That move was seen a big blow to ZTE, which has relied on U.S. chips and software to power its smartphones. But it has also reinforced China’s determination to accelerate the development of its own high-tech industries and reduce reliance on the United States. In other words, it has reinforced China’s determination to pursue its “Made in China 2025 plan” despite U.S. objections, experts said.

“There’s no space for negotiation on China’s development,” said Ruan Zongze, executive vice president at Beijing’s China Institute of International Studies, a think tank affiliated with the Foreign Ministry. “China has to progress, and it’s unstoppable by anyone.”

China’s Commerce Ministry said it made “solemn representations” to the U.S. delegation over the ZTE case during the talks. 

“The U.S. side stated that it attaches importance to China’s representations and will report to the U.S. president on China’s position,” a Commerce Ministry spokesman said, according to the ministry’s website.

Lynch reported from Washington. Luna Lin, Lui Yang and Shirley Feng in Beijing contributed to this report.


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