Published:  12:45 AM, 10 July 2019

Little change ahead of US-China trade talks

Little change ahead of US-China trade talks U.S. President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019. -Reuters

The United States and China are set to relaunch trade talks this week after a two-month hiatus, but a year after their trade war began there is little sign their differences have narrowed.

After meeting with Chinese President Xi Jinping in Japan just in late June, US President Donald Trump agreed to suspend a new round of tariffs on $300 billion worth of imported Chinese consumer goods while the two sides resumed negotiations.

Trump said then that China would restart large purchases of US agricultural commodities, and the United States would ease some export restrictions on Chinese telecom equipment giant Huawei Technologies. But sources familiar with the talks and China trade watchers in Washington say the summit did little to clear the path for top negotiators to resolve an impasse that caused trade deal talks to break down in early May.

A US official said last week the discussions were expected to resume with a phone call between US Trade Representative Robert Lighthizer, Chinese Vice Premier Liu He and Treasury Secretary Steven Mnuchin. A USTR spokesman said the call was expected this week, but gave no further details.

The United States is demanding that China make sweeping policy changes to better protect American intellectual property, end the forced transfer and theft of trade secrets and curb massive state industrial subsidies. At stake, US officials say, is dominance of the high-tech industries of the future, from artificial intelligence to aerospace.

"We've had a change in atmospherics," said Derek Scissors, a China expert at the American Enterprise Institute, a business-oriented Washington think tank. "While this is great for markets, the administration has not said one specific thing about how we're unstuck."

Scissors, who has at times consulted with Trump administration officials, said that both sides got what they wanted out of the summit - a lowering of the temperature and the avoidance of new tariffs that would have been painful for both sides. "The pressure for one side to give into the other is diffused right now. I expect this to drag out for months," Scissors added. Washington and Beijing appear to have different ideas of what the two leaders agreed in Osaka.

Three sources familiar with the state of negotiations say that the Chinese side did not make firm commitments to immediately purchase agricultural commodities. One of the sources said Trump raised the issue of agricultural purchases twice during the meeting, but Xi only agreed to consider purchases in the context of a broader final agreement.

Other than a small purchase of American rice by a private Chinese firm, no purchases have materialized. Chinese officials and state media accounts in the past week have emphasized that any deal, including agricultural purchases, is dependent on removal of US tariffs.

"The Chinese have been clear they didn't promise anything," said one source familiar with the talks. "The idea they would give up their main leverage before getting anything doesn't make sense. I could see them buying some pork and buying some soybeans, but it's still going to be pennies."

Trump administration officials have also downplayed the extent of pledges to allow Huawei to purchase US technology products, with White House trade adviser Peter Navarro saying that only "lower-tech" US semiconductors could be made available for sale to the company.

Reuters reported last week that the Commerce Department's export control enforcement staff was told to continue to treat Huawei as a blacklisted entity as the department considers requests for licenses to US firms to sell products and services to Huawei Chinese officials point out that they only got the United States to concede on Huawei at the Osaka talks, rather than on their other demand, which was removing the existing tariffs.

So the focus on the upcoming talks will be the scrapping on the tariffs, they say. A second source said that US tariffs on $250 billion worth of Chinese goods and Chinese tariffs on $160 billion worth of US goods could wind up being "the new normal."

One Chinese official familiar with the situation said that trade talks would be re-started very quickly, but that there was a "fairly large gap" in the core demands of both countries and it would be a challenge to reach consensus on the toughest issues.

"The negotiating environment is even more severe," the official said. Another official said China remained concerned about the presence of hawks in the U.S. team, such as Trump advisor Peter Navarro. "There are bullies there," the official said. The officials spoke to Reuters on condition of anonymity.

---Reuters, New York

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