China prepares a hard-line stance on Trump's trade demands

Beijing feels its economy has become big enough and resilient enough to stand up to the US.
Beijing feels its economy has become big enough and resilient enough to stand up to the US. PHOTO: REUTERS

BEIJING • China will refuse to discuss President Donald Trump's two toughest trade demands when US negotiators arrive in Beijing this week, people involved in Chinese policymaking say, potentially forcing Washington to escalate the dispute or back down.

The Chinese government is publicly urging flexibility on both sides.

But senior Beijing officials do not plan to discuss the Trump administration's two biggest demands: a mandatory US$100 billion (S$132 billion) cut in America's US$375 billion annual trade deficit with China and curbs on Beijing's US$300 billion plan to bankroll the country's industrial upgrade into advanced technologies such as artificial intelligence, semiconductors, electric cars and commercial aircraft.

The reason: Beijing feels its economy has become big enough and resilient enough to stand up to the US.

A half-dozen senior Chinese officials and two dozen influential advisers laid out the Chinese government's position in detail during a three-day seminar in Beijing that ended late yesterday morning.

It is not clear what will happen when the two sides sit down this week or whether either will find a reason to waver. Still, their positions are so far apart that China's leaders are sceptical a deal will be possible at the end of this week.

They are already raising the possibility that Chinese officials may fly to Washington a month from now for further talks.

"I don't expect a comprehensive deal," said Mr Ruan Zongze, executive vice-president of the China Institute of International Studies, which is the policy research arm of China's Foreign Ministry. "I think there is a lot of game-playing here."

The Chinese government is frustrated with Mr Trump's threats to impose tariffs on US$150 billion in Chinese goods and dismayed by suggestions in the West that China has a weak bargaining position.

Chinese officials believe their country's one-party political system and President Xi Jinping's enduring grip on power mean that China can outlast the United States and Mr Trump in any trade quarrel.

Beijing believes Mr Trump's background as a businessman means that at some point he will agree to a deal. But China is insisting the parameters of any deal be limited, and the tariff threat be removed before a final deal can be struck.

Chinese officials have reached out to US Treasury Secretary Steven Mnuchin, who has reacted positively to China's overtures in the auto and financial sectors.

Mr Mnuchin, who will be on the Trump administration's team in Beijing this week, has sought to calm investors in global financial markets, some of whom have been alarmed by the consequences of a trade war for stock prices and economies.

But the Chinese stance is that two long-term demands raised by trade policy specialists in the Trump administration are unacceptable.

One of these demands is a request by White House officials for a US$100 billion reduction in the annual trade deficit with China. The other demand, for limits on China's industrial policy, is from US trade representative Robert Lighthizer, who is also part of the negotiating team scheduled to visit Beijing.

China is ready to discuss shrinking the US$375 billion annual trade deficit, but it wants to do so by buying more high-tech American goods, which Washington has long blocked because of concerns that they may have military value, and by buying more fossil fuels.

A senior Chinese government official has said Beijing is unwilling to negotiate over any curbs on China's industrial policy, which includes large-scale government assistance to favoured industries in advanced-technology manufacturing.


A version of this article appeared in the print edition of The Straits Times on May 01, 2018, with the headline 'China prepares a hard-line stance on Trump's trade demands'. Print Edition | Subscribe