An automatic robot arm with optical sensors working in factory. Photo: iStock
China is moving to a high-tech manufacturing future. Photo: iStock

They have effectively hit the pause button. Beijing and Washington decided to come to a tentative agreement during the weekend to avert a full-blown trade war after two days of hard bargaining in the United States capital.

But despite the smiles and upbeat rhetoric, major issues still remain.

Although a blueprint has been mapped out to cut the ballooning US trade deficit, which was a record US$375.2 billion last year, the silence was deafening when it came to the White House’s other key demand to tackle Chinese subsidies for advanced technology industries.

The topic became a major stumbling block during discussions between economic envoy and Vice-President Liu He and US Treasury Secretary Steven Mnuchin.

Still, progress was made as Spring finally arrived to thaw out the defacto Cold War platitudes.

“It has laid a solid foundation for the resolution of any problems that may arise in bilateral trade relations in the future,” Wang Huiyao, the founder and president of the Center for China and Globalization, a leading independent think tank based in Beijing, told the state-run China Daily.

While tensions between the US and China still remain, they have been ratcheted down a few notches.

Indeed, the proposed tit-for-tat tariffs, amounting to $100 billion, on imported products and goods wheeled out by both sides have been put on hold.

Trade imbalances

A framework has also been set up to address trade imbalances in the future with Commerce Secretary Wilbur Ross heading to Beijing in the next few weeks to look at crucial areas where US exports can be increased, including energy, liquefied natural gas, agriculture and manufacturing.

“We are putting the trade war on hold,” Mnuchin told Fox News. “Right now, we have agreed to put the tariffs on hold while we try to execute the framework.

“We have specific targets [but] I am not going to publicly disclose what they are,” he added. “They go industry by industry.”

Yet meeting President Donald Trump’s target of reducing the deficit by $200 billion might not be feasible in the short or even long term.

Liu hinted as much at the weekend when he stressed that it will take longer to resolve “structural problems” in trade relations.

In answering how this new ‘roadmap’ will unfold in the months ahead, he pointed out that the two sides have already established working groups in disputed sectors of their respected economies.

“Maybe some ministers from the US government will lead the groups to Beijing to have deeper discussions and try to make concrete deals,” Liu said.

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Robert Lighthizer, a senior trade representative, confirmed that getting China to further open up its markets to more US exports was important. But he again cautioned that it was vital that Washington resolves issues about technology.

“Real structural change is necessary. Nothing less than the future of tens of millions of American jobs is at stake,” he said.

Significantly, this involves Beijing-sponsored subsidies to the country’s tech industry, which would strike at the heart of President Xi Jinping’s grandiose “Made in China 2025” plan, a cornerstone of his economic policy.

It was, in fact, conspicuous by its absence in Saturday’s statement.

There was also a lack of clarity about relaxing the crippling restrictions on Chinese telecom giant ZTE, which were imposed last month by the US Commerce Department.

This particular saga has rolled on for weeks after ZTE was banned from using US components, including semiconductors, for seven years after violating export sanctions to Iran and North Korea.

Before last week’s talks, Trump announced he would help the group “get back into business” after it was forced to cease operations at its Shenzhen plant.

‘Big fines’

“If any of the remedies are altered they are still going to be very, very, tough, including big fines, compliance measures, new management, new boards,” Larry Kudlow, who is Trump’s top economic adviser, told Face the Nation on CBS. “Do not expect ZTE to get off scot-free. Ain’t going to happen.”

For Beijing, this will be a crucial sticking point, while “Made in China 2025” will be simply non-negotiable.

Launched in 2015, the program encompasses an array of sectors, from chips, computers and the cloud to smartphones and smart cars. Renewables, railways and robotics are other vital areas earmarked.

Yet the sheer depth of the program has triggered a technological arms race with Trump insisting that Beijing’s state subsidies for high-tech industries must be curtailed.

“China has already been subjected to American export controls on high-tech equipment,” Kishore Mahbubani, a professor at the National University of Singapore and the author of Has the West Lost It?, wrote in an opinion piece for Asia Times.

“It is not about to give up its quest for high-tech development, a critical element of a clear long-term strategy for moving its economy up the global value chain,” Mahbubani added.

Taking a sledgehammer to the “strategy” is not an option for Washington even if it can thrash out a meaningful trade deal. The question is, will Trump be able to live with that?

If not, China and the US are in for a bumpy ride with the rest of the world feeling every pothole along the way.

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