State of Play: U.S.-China Trade Negotiations `Miles' From Deal

(Bloomberg) -- We’re about five 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 is set to travel to Washington for what the White House is describing as “very, very important” talks from Jan. 30-31. A Chinese delegation including vice ministers will arrive in Washington on Monday to prepare for the negotiations led by Liu that will include China’s central bank governor Yi Gang, according to people familiar with the matter.

While both sides appear to be in close contact with each other as the next formal round approaches, it’s apparent that there’s still a long way to go before a deal can be concluded that will pass muster with President Donald Trump. 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 doing something, such as the speeding up of the approval of a foreign investment bill that will ban “forced technology transfer”.

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.

Beijing has refused to budge further and denied any of state-led intellectual property theft while asking for evidence from the U.S. that it is 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.

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.

The idea that U.S. officials would be able to hold their Chinese counterparts’ feet to the fire over a list of specific actions -- under the threat of tariffs -- could in itself be a “deal-breaker,” according to Blackstone Group LP Chief Executive Officer Steve Schwarzman.

Schwarzman, who functions as something of an intermediary between the U.S. and Chinese governments, proposed that China set up a compliance bureau in the office of the country’s vice premier. His proposal echoes the tone from the Trump administration.

“Promises are great but enforcement is what we want -- things like deadlines and timetables and full coverage of the various structural issues,” according to Kudlow. “Will this all be solved at the end of the month? I don’t know. I wouldn’t dare to predict.”

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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