Symphony of strife echoes through trade talks

If the trade war was a symphony, there would be thunderous brass movements intertwined with subtle woodwind and string sections.

Mood music which would echo through the corridors of New York’s Carnegie Hall or Beijing’s National Center for the Performing Arts.

Yet the tempo would be uncertain, according to a group of Chinese economists and academics. Much would depend on Beijing’s commitment to further open up the economy.

Retrenchment would not be an option. Neither would the snail-like pace that has not only frustrated the United States but also the European Union.

“‘As long as China firmly implements the policy of expanding its opening up to the outside world, the impact of Sino-US trade friction on the Chinese economy is relatively limited, and [business] confidence [will return],” an in-depth analysis written by project leader Dong Yan and Xu Qiyuan, the director of the International Trade Office of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, revealed.

“But if the tariff war escalates and drags on, this may have a substantial impact on the global [economy], including China,” they added along with six other economists and academics for a report commissioned by the Shanghai Pushan New Financial Development Foundation.

A limited phase one deal is still taking shape, although it should be signed off later this month.

To recap, Beijing has agreed to boost US agricultural imports, open up further its financial services industry and roll out an intellectual property rights law with teeth. In response, Washington has delayed a planned hike in tariffs on Chinese goods and products worth US$250 billion.

Since it has taken more than a month to work out the fine details, moving on to phase two will be challenging if not impossible.

“For China, removing all the additional tariffs is a core concern that has not changed and will never change; even if there is a first phase deal, this core concern should be reflected,” Taoran Notes, a social media account linked to the state-run Economic Daily, pointed out.

‘Additional tariffs’

On the other side of the fence, the US has key concerns such as intellectual property theft, forced transfer of technology, cyber spying and even Beijing’s state-run model.

Also, there is the issue of enforcing any subsequent accord. So, scrapping all “additional tariffs” would be a huge leap of faith for President Donald Trump’s administration.

“Putting all this together suggests that after a year and a half of drama and a boatload of collateral damage, we may be pretty much back where we started,” William Alan Reinsch, of the Center for Strategic and International Studies, said.

“Chinese agriculture purchases will resume at either normal or higher levels, new US tariffs will be postponed (but not permanently tossed aside), old Chinese promises will be recycled, while some tariffs on both sides will remain in effect. And all the problems that we began with remain,” he wrote on the Washington-based think tank’s website.

Dong and Xu were just as blunt in the analysis published last week on the China Finance 40 Forum, an independent think-tank dedicated to policy research on economics and based in Beijing.

They argued that Washington was hell-bent on starting the trade conflict and questioned the motives behind the decision. They also felt it went beyond the US trade deficit with the world’s second-largest economy, which stood at a massive $419.52 billion last year.

At the core of the dispute was the central government-funded “Made in China 2025” program and China’s rush to be a major technological superpower.

In a reappraisal of the unfolding events, Dong and Xu wrote:

“To put it simply, if the differences in [the] economic order between China and the United States remain unchanged, [it] will lead to a rapid rise in disputes between [both countries]. What is more, the competitive relationship between the [two] economies means [friction] may accelerate.

“It can be argued that economic and trade tensions will continue to increase … In March 2018, the Office of the US Trade Representative published the 301 Investigation Report. Its main “discovery” was that China was pursuing a government-led industrial policy ‘in the field of technology, especially advanced technology’ in a move to ‘dominate the global market.’ This included an unfair technology transfer system, discriminatory licensing restrictions … and targeting investment in overseas high-tech industries, as well as stealing US intellectual property.

“But our analysis shows that the 301 Investigation Report was based on hearsay and subjective speculation. It also shows that the United States had decided to launch a trade war against China before launching the 301 Investigation Report. The so-called ‘facts’ were merely to create excuses for the US government to start the dispute.”

Yet “claims” by Washington have also become concerns in Brussels.

‘Opening up’

The EU has constantly expressed anxiety about the influence state-run companies wield in China and Beijing’s ballooning investment in the sector while constantly banging the drum for “reforms” and further “opening up” the economy.

“Rather than cutting [China’s] SOEs down to a manageable size, determining the industries that would be most appropriate for them to be operated in and privatizing the rest, the goal has been to make them ‘stronger, better and bigger’,” Joerg Wuttke, the president of the EU Chamber of Commerce in Beijing, wrote in an annual study entitled European Business in China – Position Paper.

The report released in September again exposed deep grievances that still exist and not only in the US.

“We see many things in the same way as the US does,” Cecilia Malmström, the European Trade Commissioner, told the German magazine and online news site Der Spiegel during the summer.

“We are defending ourselves against state-subsidized companies buying up our most creative companies, we are fighting against intellectual property theft and for greater transparency. We are working closely with the US and Japan on this, for example when it comes to better monitoring Chinese investments in our countries,” she added.

It is an argument that even Dong, Xu and the rest of the project team, which wrote the report entitled Facing the Sino-US Trade Conflict and insisting on Deepening Reform and Opening Up, have highlighted.

They simply confirm that this has become a source of antipathy between trading partners and foreign companies operating in the country.

“China does have room for improvement in areas such as industrial policy and state-owned enterprises. Some of these practices have even affected innovation and industrial upgrading in the country. We need to re-examine this and continue deep reforms by further opening up [the economy],” the study said.

At last, notes of harmony in a symphony of strife. But then, the broader issues are unlikely to fade away like an old melody.