Trade Talks Are Foundering on Mistrust and Arrogance

(Bloomberg Opinion) -- The trade war is back on.

President Donald Trump’s Sunday night tweet promising a fresh round of tariffs isn’t looking like the thought bubble some suspected. While the talks will go on and a Chinese delegation will visit the U.S. later this week, levies will indeed go up on Friday, according to U.S. Trade Representative Robert Lighthizer, due to what he characterized as China going back on its promises.

“We felt we were on track to get somewhere. Over the course of last week we have seen an erosion of commitments by China. That in our view is unacceptable,” Lighthizer told reporters late Monday.

In many ways, this isn’t very surprising. There has long been a tension between the sort of expansive economic changes that trade hawks like Lighthizer have wanted from China and the low-level agricultural purchases that Beijing was prepared to offer. The manifest mistrust between both sides has only inflamed that division.

That lack of trust is clearly visible in the way things just blew up. In complex international diplomacy, it’s hardly unprecedented for issues that had been taken off the table to come back into play – despite Lighthizer’s depiction of events. The maxim that “nothing is agreed until everything is agreed” is a mainstay of trade discussions for a reason. Every time a side wants to get a concession in one area, the other side will want to extract an offsetting benefit, and that can involve reopening topics that had been provisionally settled.

At the same time, his frustration speaks to a long-standing complaint about China’s way of handling international negotiations. Too often, diplomats feel that commitments made in theory by Beijing are never enforced in practice, an issue that’s manifested itself in areas as diverse as patents and opioid manufacturing. If you’re wondering why figures such as Lighthizer and Commerce Secretary Wilbur Ross have been making so much noise about how an agreement is enforced rather than the terms of the deal itself, it’s because they don’t think Beijing is very committed to carrying out its promises.

Of course, mistrust is part and parcel of international relations. The thing that usually keeps it in check is that both sides see a benefit in coming to an accord rather than persisting with the status quo – and that may be the other thing that’s lacking in this case. 

Trade Talks Are Foundering on Mistrust and Arrogance

Most negotiations can be characterized as either distributive, or integrative. In a distributive bargain, one player tries to extract as many concessions from the other without ceding anything in return. In an integrative one, both parties offer some give-and-take to come to a mutually acceptable result. Unless there’s a very sharp power disparity between the two sides, integrative negotiations are generally the only ones that succeed.

While Trump’s instincts seem to lean towards the distributive style, the agreements with South Korea, Mexico, and Canada that Lighthizer has produced to date have in fact been fairly small-scale, integrative accords. If the U.S. has won concessions, they’ve been minor.

The talks with China are different. While Washington has a long list of asks – on intellectual property, technology transfer, foreign investment, industrial policy, agricultural purchases, all the way up to the basic structure of the Chinese economy – it hasn’t really been offering anything in return, except for the removal of the tariffs it imposed at the start of the process.

Indeed, on a separate track to the trade talks it’s been quietly making life more difficult for Beijing in a series of areas where China would like to see concessions – tightening up on investment in IP-intensive sectors, cracking down on national champions such as Huawei Technologies Co. and ZTE Corp., and restricting visas for Chinese students.

Given the way China has hitched its technological ambitions to the needs of its increasingly aggressive and human rights-abusing surveillance state, that may well be a reasonable approach. But Washington’s refusal to countenance any give to match its take makes it very hard to come up with a deal that won’t leave Beijing feeling that it’s been sold short.

It’s welcome that China’s trade negotiators are still planning to travel to the U.S. this week, and it’s possible that the current volley is just some tough talk to get a final deal over the line. But at this point there’s little sign of the commitments that Chinese Vice Premier Liu He will be able to bring back to Beijing as evidence of his negotiating prowess – and without that, it’s worryingly easy to see this process sliding into a deeper dispute.

If negotiators want to get to an agreement, they’re going to need to accept something much more limited than the hype might have suggested. It’s time to go small, or go home.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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