US-China trade talks: China can buy more from US, but deeper change may be hard to deliver - and enforce

The meetings, following official level talks earlier this month in Beijing, are part of negotiations agreed to by President Trump and President Xi Jinping in Buenos Aires on Dec 1, 2018
The meetings, following official level talks earlier this month in Beijing, are part of negotiations agreed to by President Trump and President Xi Jinping in Buenos Aires on Dec 1, 2018PHOTO: REUTERS

WASHINGTON - Chinese Vice-Premier Liu He has arrived in Washington for critical trade negotiations with the United States, slated on Wednesday (Jan 30) and Thursday, that is aimed at staving off a deeper phase in their trade war that could begin on March 1 if no agreement is reached.

At the end of this round of talks, he is due to meet President Donald Trump.

The talks come as the US Justice Department on Monday formally accused Chinese telecom giant Huawei, several subsidiaries and its chief financial officer, Meng Wanzhou, of several charges in relation to a violation of US sanctions on Iran. The charges include stealing of trade secrets, obstruction of justice and bank fraud by evading economic sanctions on Iran.

The clock is ticking. If China and the US fail to reach an agreement by end of February not only on lowering tariffs while closing the US's yawning trade deficit with China, and also on structural changes to China's economy to, among other things, curb forced joint ventures with and technology transfer from US companies, and allow them more access to China's market, come March 1 the US could raise tariffs on US$200 billion (S$270 billion) in Chinese imports from 10 to 25 per cent.

There is cautious optimism that an agreement will emerge.

"My baseline assumption is that very close to the deadline, we will come up with a deal that… at least allows both sides some breathing room by de-escalating hostilities or at least a cessation of future hostilities," Prof Eswar Prasad, former China director at the International Monetary Fund, said last week in a speech in Washington.

Certainly nervous and volatile markets will be looking for positive signals. But many analysts say the deep structural changes the US is demanding of China are too fundamental for China to deliver.

 
 
 

The meetings, following official level talks earlier this month in Beijing, are part of negotiations agreed to by President Trump and President Xi Jinping in Buenos Aires on Dec 1, 2018 - in effect a 90-day conditional truce in which neither side would raise tariffs.

"The two sides will… discuss China's pledge to purchase a substantial amount of goods and services from the United States," the White House said in a statement.

The US side will be led by US Trade Representative (USTR) Robert Lighthizer, and include Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, Assistant to the President for Economic Policy Larry Kudlow, and Assistant to the President for Trade and Manufacturing Policy Peter Navarro.

The Chinese side is led by Mr Liu, who is also a member of the Political Bureau of the Communist Party of China Central Committee. Other members in his delegation include Governor of the People’s Bank of China Yi Gang, Vice-Chairman of the National Development and Reform Commission Ning Jizhe, Vice-Minister of Industry and Information Technology Luo Wen, as well as Vice-Minister of Commerce and Deputy China International Trade Representative Wang Shouwen, according to Xinhua news agency.

There are four broad areas in the talks. A relatively easier one is how much and of what American products and produce China will commit to buy. A second is what China can do to show progress on deregulation. A third is addressing structural issues in China; this covers among other things market access; intellectual property (IP) issues, and the China 2025 vision which aims at making the country a global tech power by 2025. The fourth is enforcement of any deal.

On Monday in Washington, senior administration officials seemed to have realistic expectations.

Treasury Secretary Steve Mnuchin told journalists at the White House: "We do have another 30 days after this, so my expectation is we'll make significant progress at these meetings, but I would just emphasise these are complicated issues."

Asked for details, he repeated: "There's been significant movement and we're working through what are still very complicated issues."

"Enforcement will definitely be one of the topics that Ambassador Lighthizer and I have on the agenda," he said.

"We want to make sure that we expect when we get a deal, that deal will be enforced. I would say in the conversations we had previously with them there's been an acknowledgement with China that they understand that."

"The details of how we do that are very complicated, that needs to be negotiated. But IP protection, no more forced joint ventures, and enforcement are three of the most important issues on the agenda."

China is likely to cite a slew of measures it has taken since President Xi and President Trump met at the Group of 20 summit in Argentina.

These according to a compilation by the trade and business consultancy McLarty Associates, include approving imports, after a long delay, of five genetically modified crops; the first ever approved imports of American rice; large orders of soybeans; accelerated approval of foreign pharmaceutical drugs; cancelled or lowered tariffs on some imports; setting up OF an intellectual property rights court under the Supreme Court; and promises to review foreign investment laws.

"They've done more than usual, that's all positive," Ms Kellie Meiman Hock, managing partner at McLarty Associates, told The Straits Times.

"The question at the end of the day is, is it enough for Bob Lighthizer, and is it enough for Donald Trump at a time when he's concerned about markets," she said.