Carving out a trade deal in the Year of the Pig

A riot of red heralded the Year of the Pig in Beijing this week against a background of primary colors.

In Washington, the mood was a more somber gray as United States President Donald Trump reiterated his tough stance on China ahead of planned trade talks with President Xi Jinping.

With just 24 days left 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.

“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 a real structural change to end unfair trade practices,” Trump added.

At times, the rhetoric has 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.

Still, 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.

IP protection

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.

Xi has talked at length about China’s position in numerous speeches and his views were trotted out again by Vice-President Wang Qishan at the World Economic Forum in the Swiss ski resort of Davos last month.

“It is imperative to respect national sovereignty and refrain from seeking technological hegemony, interfering in other countries’ domestic affairs, and conducting, shielding or protecting technology-enabled activities that undermine other countries’ national security,” Wang said in remarks that would have echoed in Washington’s corridors of power.

“We need to respect the independent choices of the model of technology management and of public policies made by countries, and their right to participate in the global technological governance system as equals,” he added.

Indeed, the Huawei controversy has illustrated the chasm between the two nations.

In January, the United States Justice Department announced sweeping charges against the Chinese telecom giant, including bank fraud, obstruction of justice and technology theft.

Key accusations involve violations of US sanctions on Iran, an allegation which has been leveled against Chief Financial Officer Meng Wanzho, the daughter of billionaire founder Ren Zhengfei.

After being arrested in Canada on December 1, she could now face extradition to the US. Meng and Huawei have categorically denied the charges.

“The current trade war between the United States and China is not about trade,” Yukon Huang, a senior fellow at the Carnegie Endowment and author of Cracking the China Conundrum: Why Conventional Economic Wisdom Is Wrong, said.

‘Technological edge’

“This war is about protecting the technological edge that has made the United States the world’s dominant economic power,” the former World Bank director for China added.

Yet, countries such as Australia, New Zealand, Japan, the United States and the United Kingdom have already restricted Huawei’s market access when it comes to developing super-fast 5G networks, according to media reports.

On Tuesday, German Chancellor Angela Merkel confirmed there were growing concerns in the European Union about using the group’s technology and called for assurances from Xi “that the company” would not hand over “data” to “the Chinese state.”

Washington is also pushing the EU to make this a priority.

“We are saying you need to be very, very cautious and we are urging folks not to rush ahead and sign contracts with untrusted suppliers from countries like China,” a US State Department Official said earlier this week.

With renewed trade discussions just weeks away, this toxic atmosphere will linger well after the peace talks have concluded.

“The US-China relationship has now reached what respected China scholar David M. Lampton describes as a ‘tipping point,’” Ryan Hass, a senior fellow in foreign policy for the John L. Thornton China Center at the Brookings Institution, wrote.

“The basic assumptions and expectations that guided the development of US-China relations over the past 40 years no longer hold and, so far, no consensus has formed in either country about what should replace them,” he added.

In the Year of the Pig, it could be the year of confrontation.

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