US risks being shunted into trade talks cul-de-sac

Donald Trump did it. So, now it is the turn of Xi Jinping.

In a move to replicate the ploy used by the United States President, China’s head of state is expected to meet the main players during high-level trade talks in Beijing.

The two-day discussions start on Thursday after a low-level meeting earlier this week prepared the groundwork.

Media reports coming out of China suggest Xi will meet US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Friday.

Last month, Trump took the time to chat with Vice-Premier Liu He, who spearheaded China’s team when talks resumed in Washington. The decision helped pave the way for this latest round of hard-bargaining.

Yet, finding a solution will require not only diplomacy but the ability to compromise.

‘Structural reform’

As the state-run Global Times pointed out in an editorial:

“For structural reform, China is determined to put greater efforts into expanding its opening up and reform [policies]. China will also make adjustments to enhance the legal protection of intellectual property rights and improve the non-public sector’s status. China and the US have found common interest in those reforms.

“However, China will uphold the basic economic system and its right to develop high-tech manufacturing industries. The US government should have no more fantasies about China giving up its legitimate rights. After a few rounds of trade talks, it is reasonable to assume that the US is aware of where China’s bottom line lies.”

Indeed, that “bottom line” might be a major problem for Washington, despite Trump’s announcement on Wednesday that he could extend the March 1 deadline and ease the threat of a 25% hike on Chinese imports worth US$200 billion.

Progress appears to have been made on IP rights and addressing the US deficit with the world’s second-largest economy, which was a record-breaking $323.32 billion last year.

But crucial elements such as the White House’s concerns about technology transfer, the country’s state-subsidies model and the “Made in China 2025” plan will be more difficult to resolve.

Beijing is also furious about the targeting of telecom giant Huawei, one of the poster boys of the high-tech sector and vital to the ambitious roll-out of 5G networks envisaged by Xi’s administration.

Focus minds

“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, wrote in an opinion piece for Caixin.

“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 on the Beijing-based media website.

Still, if an agreement is finally sealed, enforcing it will be critical.

A cooling economy might focus minds within Xi’s inner circle, but anxieties exist that the US could be shunted into a cul-de-sac on this issue.

“China appears committed to heavy state involvement in its economy, and prevailing international rules and norms appear ill-equipped to deal with China’s economic model,” Ryan Hass, an academic at the Center for East Asia Policy Studies, and Mira Rapp-Hooper, of the John L. Thornton China Center, wrote last week in a commentary for the Brookings Institution.

“If there is an effort to update the international rules-based economic order, the United States will have to play a leading role. Fixating on the bilateral trade deficit and pursuing unilateral tariffs against China is unlikely to change Chinese behavior to address American concerns about market access, forced technology transfer, state-directed industrial policies to support national champions, overcapacity, and intellectual property protections,” they added.

Defusing that ticking time bomb will take more than a lexicon of soothing words from Xi.