State of Play: Liu Arrives in Washington Ahead of Trump Meeting

(Bloomberg) -- We’re just over four weeks away from a deadline for the U.S. to escalate tariffs on $200 billion of Chinese goods if no breakthrough deal on trade relations is reached.

Following a round of negotiations in Beijing in early January, Chinese Vice Premier Liu He has arrived in Washington for what the White House is describing as “very, very important” talks from Jan. 30-31. President Donald Trump is expected to meet Liu, according to Treasury Secretary Steven Mnuchin, who is also going to take part in the negotiations this week.

A delegation of Chinese officials including central bank governor Yi Gang, the deputy chief of the nation’s top economic planner Ning Jizhe and the deputy ministers from the government departments that oversee industrial policy, agriculture and treasury, are accompanying Liu.

While both sides appear to attach great importance to the next formal round, there’s still a long way to go before a deal can be concluded, even without external complications. U.S. prosecutors on Monday filed criminal charges against China’s Huawei Technologies Co., a case that goes to the heart of the two nations’ standoff. Commerce Secretary Wilbur Ross said on Jan. 24 that the U.S. and China are “miles and miles” from a deal.

This is a regularly updated summary of what we know about the state of the negotiations:

What Is the U.S. Asking For?

Wide-ranging changes in the way China manages foreign trade and its own economy. Specifically, U.S. Trade Representative Robert Lighthizer has zeroed in on China’s alleged abuses of intellectual property and state sponsorship of companies.

Trump has also railed against the size of the U.S. trade deficit with the China, and negotiators have made varying demands about how Beijing addresses this. The goal of “reciprocal trade” has been a clear priority of Trump’s protectionist policies.

The U.S. also wants China to spell out an enforcement and verification process for any deal they strike.

However, Lighthizer may also be focusing on trying to get the Chinese to change laws deemed by the U.S. as problematic, or even introduce new criminal penalties like fines and jail time for those who break the rules. China has publicly denied the U.S.’s claims regarding IP theft and the forced transfer of technology.

At the same time, China is going into the next round of talks able to claim that it’s taking action, such as the speeding up of the approval of a foreign investment bill that will ban “forced technology transfer.” Meanwhile, the economic slowdown, with the weakest growth since 2009, may add the urgency for China to push for a deal to end the trade spat.

What Is China Willing to Give?

China wants to have the tariffs that have been imposed so far removed. To get the U.S. to do that, negotiators are trying to focus attention on China’s more than $300 billion goods trade surplus -- something that, while hard to redress, may be preferable to totally changing the way the nation pursues technological advancement.

To that end, Beijing has offered to ramp up its purchases from the U.S. massively over the next six years in order to even the scales. Yet that offer has been met with skepticism as to whether it’s even possible, or legal, and hasn’t stopped the U.S. from focusing on intellectual property theft.

State of Play: Liu Arrives in Washington Ahead of Trump Meeting

China’s policy makers may also be willing to lower market barriers in certain sectors both to speed up domestic reform and foster competition, and that could be also packaged in a way to address the U.S. demands. The People’s Bank of China approved a license for S&P Global Ratings’ Beijing-based unit to conduct credit rating business on the mainland, the first time a fully foreign owned firm has received such a license.

On other fronts, Beijing has refused to budge further and denied any state-led intellectual property theft while asking for evidence from the U.S. that it’s taking place, according to officials briefed on the matter.

In addition, apart from downplaying the Made in China 2025 propaganda campaign at home, there is no significant evidence that China is willing to drop its ambitious set of state-sponsored targets for industrial development. A top regulator recently defended the plan, and asked for a fair view of the nation’s goal to transform its economy into a high-tech powerhouse.

What About Enforcement?

Even if negotiators could agree immediately on a set of actions by China that would stave off the arrival of higher tariffs, there’s no mechanism in sight to be able to verify that those things have indeed been done. The dispute is being dealt with outside the World Trade Organization’s established dispute resolution procedure.

One of the key issues at the trade negotiations will be enforcement of China’s agreements, Mnuchin told reporters during a White House briefing. “We expect when we get a deal, that that deal will be enforced,” he said. “The details of how we do that are very complicated.”

Further Reading

  • What’s Intellectual Property and Does China Steal It?: QuickTake
  • U.S.-China Cold War Will Worsen Before It Improves: Tyler Cowen
  • CHINA REACT: Exports Drop - Trade Ends 2018 Weak, 2019 Grim

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