Major sticking points remain after US-China trade talks

Hope, hype and a handful of promises. After two days of extensive trade discussions in Beijing, the United States and China finally agreed on one key point – to keep talking.

In what can only be described as a game of geopolitical poker, there were few signs that anyone blinked.

China did discuss “increasing” imports from the US, the state-run news agency Xinhua reported.

“The two sides [also] agreed that a sound and stable China-US trade relationship is crucial for both, and they are committed to resolving relevant economic and trade issues through dialogue and consultation,” the mouthpiece of the ruling Communist Party stated.

“[An] exchange of views on issues [included] increasing US exports to China, bilateral service trade, two-way investment, protection of intellectual property rights [and] resolving tariff and non-tariff issues,” Xinhua added.

But “considerable differences” still exist on major issues after the US rolled out a draft document, entitled Balancing the Trade Relationship, which outlined Washington’s grievances and remedies to a ballooning deficit with China.

They included, according to Bloomberg, the following key points:

• The US wants China to cut the two nations’ trade deficit by at least US$200 billion by the end of 2020 from 2018 levels.
• China to immediately cease providing subsidies and government support that fuels excess capacity in industries targeted by the Made in China 2025 plan.
• Strengthened intellectual property rights protection and enforcement.
• A demand that China does not “oppose, challenge, or otherwise retaliate against the United States’ imposition of restrictions on investments from China in sensitive US technology sectors, or sectors, critical to US national security.”

“My impression was that [the talks] didn’t go well given the rhetoric,” Kevin Lai, a senior economist at Daiwa Capital Markets, a global investment firm, in Hong Kong told Reuters. “I think the divide is still very big.”

The US delegation, led by US Treasury Secretary Steve Mnuchin, headed straight back to Washington without issuing a statement.

Indeed, this appeared to underline the complexity of the negotiations with China’s team, which was spearheaded by Vice-Premier Liu He, a confidante of President Xi Jinping.

“We’re in the process of negotiations, which suggests that things are moving along quite well. But, because it’s all taking place with the possibility of tariffs that could be triggered at any moment, that’s a lot of pressure and things could go quickly awry without a lot of additional pressure,” Deborah Elms, the executive director at the Asian Trade Center in Singapore, told CNBC.

At the heart of the trade dispute, which has been dragging on since the end of last year, are two crucial demands from Washington.

In a recurring theme, President Donald Trump has called for an initial $100 billion reduction in the US trade deficit with China, which reached a record $375.2 billion last year.

He has also targeted “advanced technologies” and Xi’s core ‘Made in China 2025’ industrial policy, which will turn the world’s second-largest economy into a high-tech powerhouse.

Last week, Xi told scientists that China must develop its own technology. “To tackle the next key problems in science and technology, we should abandon fantasies and rely on ourselves,” he said, spelling out the task ahead.

His comments came after the White House threatened to levy new duties on $150 billion of Chinese imports after Beijing had retaliated to earlier tariffs with a list of $50 billion in targeted products.

As tensions increased, Asia Times reported last week that a major investigation by the US Justice Department had been launched into tech giant Huawei for alleged violations of US export sanctions to Iran.

This, in turn, followed a move last month by the Trump administration to ban the sale of US technology and components, including semiconductors, to Chinese telecom group ZTE for similar offenses.

During the course of trade talks on Friday, this was brought up by Liu’s team with Mnuchin agreeing to talk to Trump about the issue, Xinhua pointed out.

Earlier, the US side had admitted to being quietly optimistic even though the absence of a detailed official statement added to the drama.

“What I heard from the first day has been fairly positive,” Mark Calabria, the chief economist to US Vice-President Mike Pence, said in Washington.

“The difficulty will always be that we will most of the time hear pretty positive things from China and the question is whether they will actually do them. So, that’s going to be the tough part,” he added.

Mnuchin’s remarks were more surreal. “Thrilled to be here. Thank you,” he said at his hotel when asked if he was optimistic about making progress.

With the clock ticking, it will be interesting to see if he is still “thrilled” when a deal is finally hammered out.