US wants regular reviews of China reforms

Washington may turn to tariffs again if Beijing is caught violating trade deal, say sources

WASHINGTON • The United States is pushing for regular reviews of China's progress on pledged trade reforms as a condition for a trade deal - and could again resort to tariffs if it deems that Beijing has violated the agreement, according to sources briefed on negotiations to end the trade war between the two nations.

A continuing threat of tariffs hanging over commerce between the world's two largest economies would mean a deal would not end the risk of investing in businesses or assets that have been impacted by the trade war.

"The threat of tariffs is not going away, even if there is a deal," said one of three sources briefed on the talks who spoke with Reuters on condition of anonymity.

Chinese negotiators were not keen on the idea of regular compliance checks, the source said, but the US proposal "didn't derail negotiations".

A Chinese source said the US wants "periodic assessments", but it is not yet clear how often.

"It looks like humiliation," the source said. "But perhaps the two sides could find a way to save face for the Chinese government."

"The threat of tariffs is not going away, even if there is a deal," said one of three sources briefed on the talks who spoke with Reuters on condition of anonymity.

Chinese negotiators were not keen on the idea of regular compliance checks, the source said, but the US proposal "didn't derail negotiations".

White House economic adviser Larry Kudlow said last Friday that the two sides were making progress on the trade negotiations. but reaching a deal would take time.

"We're making progress in negotiating on the grandest scale between the two countries ever, we're covering everything," Mr Kudlow told reporters. "I'd love to make a deal. I'm a free trader, but it's got to be a great deal."

China's Vice-Premier and lead negotiator Liu He will visit Washington for the next round of talks with US Trade Representative and lead negotiator Robert Lighthizer and US Treasury Secretary Steven Mnuchin on Jan 30 and 31.

Mr Liu's visit follows lower-level negotiations held in Beijing last week to resolve the dispute by March 2, when the Trump administration is scheduled to increase tariffs on US$200 billion (S$272 billion) worth of Chinese goods.

The administration of US President Donald Trump has imposed import tariffs on Chinese goods to put pressure on Beijing to change its policies on intellectual property protection, technology transfers, industrial subsidies and other trade barriers.

An enforcement and verification process is unusual for trade deals and is akin to the process around punitive economic sanctions such as those imposed on North Korea and Iran.

Regular reviews would be one potential solution to address a demand from Mr Lighthizer for ongoing verification of any trade pact between the two countries, three sources familiar with the talks told Reuters.

 
 

"If China can show compliance through a process like this, it would also be a trust-building measure for both sides," said Ms Erin Ennis, senior vice-president of the US-China Business Council, a trade group representing US companies doing business in China.

Mr Trump and Chinese President Xi Jinping agreed last month to a 90-day truce in the trade war to give their teams time to negotiate a deal. Nearly 50 days later, there is little sign that China will make the concessions the US is seeking.

However, China has offered to go on a six-year buying spree to ramp up imports from the US, according to officials familiar with the negotiations.

By increasing goods imports from the US by a combined value of more than US$1 trillion over that period, China would seek to reduce its trade surplus - which last year stood at US$323 billion - to zero by 2024, one of the sources said.

The officials asked not to be named as the discussions are not public.

The offer, made during talks in Beijing earlier this month, was met with scepticism by US negotiators who demanded that the imbalance be cleared in the next two years.

Economists who have studied the trade relationship argue that it would be hard to eliminate the gap, which is sustained in large part by US demand for Chinese products.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Sunday Times on January 20, 2019, with the headline 'US wants regular reviews of China reforms'. Print Edition | Subscribe