All roads from Washington will lead to Beijing

Seconds out, round two. After the opening sparring session in Washington last month, US Treasury Secretary Steven Mnuchin will head to Beijing next week for trade talks.

Along with Trade Representative Robert Lighthizer, he will spearhead a “large team,”  despite President Donald Trump’s decision to pull out of a planned meeting with China’s head of state Xi Jinping later in February.

“Ambassador Lighthizer and myself and a large team are committed to continuing these talks,” Mnuchin said.

“We’re putting in an enormous amount of effort to try to hit this deadline and get a deal. So that’s our objective,” he continued.

“We are also very focused on free and fair trade for US companies to have access there and to having a more level playing field, which will bring down the deficit,” Mnuchin added. “I don’t think it would be productive to speculate on the outcome because we have a lot of work left to do.”

With just 21 days to go to the March 1 deadline to resolve the dispute which has been dragging on for nearly a year, Trump again made his position “clear” in his second State of the Union address earlier this week.

“We are now making it clear to China that after years of targeting our industries, and stealing our intellectual property, the theft of American jobs and wealth has come to an end,” he said.

“[Any agreement with Beijing] must include real, structural change to end unfair trade practices,” Trump added.

Verbal volleys

At times, the verbal volleys have been as brutal as the tit-for-tat tariffs on a range of goods and products worth US$360 billion in total.

Crucial issues include the US deficit with China, which was a record-breaking $323.32 billion last year.

Yet, more fundamental problems exist between the world’s two largest economies, such as US accusations of intellectual property violations, forced technology transfer and Beijing’s state-subsidies model.

The White House has also singled out the “Made in China 2025” plan, which encompasses an array of industries, including the Internet of Things and interconnected smart technology linked through artificial intelligence or AI.

While Beijing has rolled out policies to tighten up IP protection, it is unlikely to change the role the state plays in the overall economy by diminishing the power of the ruling Communist Party.

In a commentary entitled “Building a Better Deal with China” for the Washington-based think tank, the Center for Strategic and International Studies, authors Daniel H. Rosen, a senior associate in China Studies at the CSIS and Scott Kennedy, a senior adviser in China Studies, wrote last month:

“The old foundations of the US-China commercial relationship have cracked, and a new basis for the two is still unsettled. For decades, bilateral trade and investment ties were on balance, mutually beneficial, and did not directly threaten US national security.

“Losses in some US manufacturing jobs were offset by gains elsewhere, lower prices for consumer goods lifted household buying power, and the economy broadly shifted away from low-margin activities that were migrating to China toward knowledge-intensive innovation upstream and high-value consumer services downstream.

“But over the last decade, that balance between benefits and challenges shifted. There are multiple reasons for this, but the most important is that China has altered its policy mix in ways that are inimical to market economies and the liberal international order they have built. Since 2012, China has reverted to reliance on state-led industrial policy to generate growth as successive marketization steps became more difficult.”

Squaring that circle will be problematic, as will putting in a monitoring system which shows Beijing is following through on its commitments.

Communist Party

But what will prove nearly impossible to negotiate away is the involvement of the state and the Communist Party in all aspects of China’s economy.

During the past 12 months, their grip has intensified.

“We need to respect each other’s independent choice of social systems and paths of development, and accommodate each other’s core interests and concerns,” Cui Tiankai, the Chinese ambassador to the US, said on Wednesday, according to the official Xinhua news agency.

“Whether on economic or security issues, we can always find a way out if we address the differences with candor and good faith, based on mutual respect and common interest,” he added at a reception for the 40th Anniversary of China-US diplomatic relations at the Chinese embassy in Washington.

Round two in Beijing next week will certainly be an ideological slugfest.

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