Trump’s China trade ‘win’ takes shape in Beijing

A new round of face-to-face trade talks between Trump administration officials and their Chinese counterparts kicked off on Thursday, and signs indicate progress is being made to craft a deal that can satisfy the US president.

One senior US official reportedly said of the talks that China has made a fundamental shift in how they are approaching a key area of disagreement, the issue of alleged forced technology transfers.

The US imposed tariffs on $250 billion worth of Chinese imports last year, demanding that China make changes to its industrial policy, including the practice of “forcing” companies to hand over technology in exchange for market access. Previous failed attempts to craft a deal fell apart over these so-called “structural issues” related to domestic Chinese policy.

China has consistently denied that the practice of asking for the transfer of know-how as part of business agreements is the result of coercion or government policy.

But the senior official said that China is now making unprecedented proposals, breaking new ground in areas including this difficult impasse, according to a report from Reuters.

“They’re talking about forced technology transfer in a way that they’ve never wanted to talk about before – both in terms of scope and specifics,” the official was quoted as saying in reference to Chinese negotiators.

US Trade Representative Robert Lighthizer publicly revealed the basic parameters of the deal currently being drafted during testimony before Congress earlier this month. He said that the text of the deal will likely be in excess of 100 pages, including sections on forced technology transfer, intellectual property protection, currency, services, non-tariff barriers, as well as agriculture.

He also noted in an interview earlier this week that there are reform-minded senior Chinese officials who see many of the US demands as ultimately beneficial for China.

Increased Chinese purchases of agriculture and energy exports are expected to be a large part of the Chinese side’s offer, but political allies and opponents of US President Donald Trump have warned against settling for a deal that does not set enforceable rules for China to change domestic policy.

Trump is gearing up for the 2020 presidential election and a positive outcome in the negotiations could be a political “win” to help him shore up his base, which was disproportionately affected by retaliatory Chinese tariffs. The same states that were hit by steep tariffs on US agricultural products will also see the biggest gains from a deal that emphasizes increased Chinese purchases.

News reports on Thursday indicated that China is continuing to ramp up its imports of US soybeans, a shift that began after Trump and Chinese President Xi Jinping announced a freeze on new tariffs late last year.

Lighthizer said in his earlier testimony that a deal, if reached, was several weeks away. After the US delegation leaves Beijing this weekend, another round of talks is scheduled to begin next week in Washington.

A positive outcome of the negotiations is largely priced into equities markets, analysts say, with Chinese stocks being the biggest beneficiaries.

“Chinese stocks, which are highly sensitive to the result of the talks, have been the best performing market of the year, with the Shanghai Composite up 22%, roughly twice the rise in global stocks,” investment bank UBS wrote in a research note. “And US industrials, a sector which is also sensitive to trade conditions, have outperformed the S&P 500 by nearly 2% points this year.”

But the analysts cautioned that tensions between Washington and Beijing would not disappear with a trade deal.

“Also, regardless of whether an agreement is reached, the deep-seated, longer-term nature of US-China rivalry is likely to continue to be a source of periodic volatility, and should temper any market enthusiasm in the event of a trade deal,” they wrote.