U.S. Wants $200 Billion Cut in China Trade Imbalance by End of 2020


BEIJING—The U.S. handed China a lengthy list of demands on trade as part of this week’s talks, from cutting the trade imbalance by $200 billion to halting Chinese government support for advanced technologies—requests Beijing called “unfair.”

The wide-ranging demands from the U.S. also sought a slashing of tariffs on imports of American products and a promise from Beijing it wouldn’t retaliate against U.S. penalties and trade restrictions. They were contained in a document, reviewed by The Wall Street Journal, handed to Chinese officials ahead of their trade talks Thursday and Friday.

Those negotiations, which came after weeks of tit-for-tat trade penalties and escalating rhetoric about a trade battle, wrapped up Friday.

A statement released Friday afternoon by the official Xinhua News Agency described the talks led by Vice Premier Liu He on the Chinese side and Treasury Secretary

Steven Mnuchin

on the U.S. side as “frank, efficient and constructive.” It said both parties reached agreements in “some areas” but there remained “significant disagreements over certain issues.” The two sides agreed to set up a “working mechanism” to keep communications going, the statement said.

U.S. officials didn’t immediately comment on the negotiations, and declined to comment on the document. The trip to China by a bevy of senior U.S. officials—which also includes U.S. Trade Representative

Robert Lighthizer

—was approved by President

Donald Trump

to see if Beijing was willing to make significant changes in policy.

The document containing U.S. demands described the U.S.-China trade relationship as “significantly imbalanced.” It noted that U.S. investment and sales of services into China remain “severely constrained” and added that China’s industrial policies “pose significant economic and security concerns” to the U.S.

Chinese officials believed the proposal was “unfair,” according to people with knowledge of the negotiations.

To address the unbalanced trade relationship, the U.S. document offered an eight-point plan to Beijing and called for China to change its policies within a year or two. It also said the U.S. was ready to negotiate on the proposals.

Before leaving for Beijing on Tuesday for the trade talks, Mr. Lighthizer said that Washington wasn’t looking to change China’s system but to make sure the U.S. wasn’t a “victim” of it. Many of the demands laid out in the U.S. document, however, amount to a request to substantially alter the way China manages its economy.

The first U.S. request is for China to reduce the bilateral trade deficit by at least $200 billion by the end of 2020. The U.S.-China bilateral deficit in goods was $375 billion last year. President Trump has repeatedly said he wanted China to slash the figure by $100 billion a year.

The U.S. also demanded that China immediately stop providing subsidies and other assistance for advanced technologies outlined in the government’s Made in China 2025 plan. The initiative aims for China to dominate future frontiers of manufacturing and industry, from robotics and aviation to new-energy vehicles.

The U.S. also asked China to cut tariffs on “all products in non-critical sectors” to levels that are no higher than the levels that the U.S. applies to imports, according to the document.

In addition, the U.S. asked China to guarantee that it won’t hit back at the U.S. for any actions taken in the disputes over intellectual property. It also asked that China withdraw its challenges in this area at the World Trade Organization.

In particular, Washington sought agreement from Beijing that it not “target U.S. farmers and agricultural products.” The U.S. is especially sensitive to lobbying from American farmers about the trade dispute because they are an important part of the Republican Party’s base and will have an outsize impact in the midterm elections in November.

Mr. Trump has made China a central focus in his economic policy, saying China’s unfair trade practices favor big Chinese companies at the expense of American businesses.

In the past few months, the Trump administration has increased pressure on Beijing about trade, levying tariffs that have hit Chinese solar panels, steel and aluminum. Mr. Trump is also threatening levies on as much as $150 billion in Chinese imports and restrictions on Chinese investments in the U.S. in a dispute about intellectual property rights.

According to the document given to Beijing, the U.S. asked China not to “oppose, challenge or otherwise retaliate” against its imposition of restrictions on Chinese investments.

Last month, China responded with its own tariffs and proposed penalties on U.S. goods, including farm products, autos and airplanes. It is also holding up approvals for multibillion-dollar takeover deals being pursued by U.S. firms including

Qualcomm
Inc.

and Bain Capital.

In addition to tariff cuts, the U.S. asked China to immediately and fundamentally change how it approves foreign investment. China approves investments from overseas after receiving applications from foreigners. The U.S. wants investments to be generally open aside from certain restricted sectors such as defense, with prohibited areas published on a “negative list.” That approach was a central issue in bilateral trade negotiations during the Obama administration. The Trump administration halted those talks but still wants the practice to be significantly changed.

The U.S. trade group is giving Beijing until July 1 to issue an “improved nationwide negative list” for foreign investment, according to the document.

The U.S. also proposed that both sides meet quarterly to review Chinese progress in meeting agreed-upon targets. If Beijing fails to comply with the demands, the document says, the U.S. would impose additional tariffs or other import restrictions on Chinese products.

The U.S. team consisted of senior officials with varying views on China, including Treasury Secretary Mnuchin who was seen as looking for a deal on financial services to calm markets. The group took a united position in the document, reflecting the more hard-line views about China held by Mr. Lighthizer and White House trade adviser Peter Navarro. Mr. Trump shares those views.

Write to Lingling Wei at lingling.wei@wsj.com




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