China, US Officials Weigh Options to Ratchet Down Trade Tensions

9 May 2018

Top officials from the US and China have been holding a series of meetings over the past week, with more on the way, in a bid to address high-profile trade tensions on industrial overcapacity, intellectual property rights enforcement, and the use of unilateral trade actions. 

A high-level US trade delegation visited Beijing from 3-4 May, including US Secretary of the Treasury Steven Mnuchin, US Trade Representative Robert Lighthizer, Secretary of Commerce Wilbur Ross, and White House economic adviser Larry Kudlow. The talks yielded few concrete outcomes, however, though officials expressed a willingness to reconvene and hold further discussions. 

Talks at the highest level are due to continue within days, with US President Donald Trump having a telephone conversation with Chinese President Xi Jinping on 8 May that included discussions on trade, though the White House readout provided scant details on specific content. 

China’s Vice Premier Liu He will visit Washington next week to continue the trade negotiations with his US counterparts, according to the White House.

“As to China's expectations for the trade talks with the US, we have issued the readout regarding the trade negotiations between our two sides in Beijing last week. I only want to stress that it serves the interests of our two sides and the world to resolve differences and disputes through equal-footed negotiations and maintain the sound and steady development of China-US trade ties,” said Chinese Foreign Ministry Spokesperson Geng Shuang on 8 May, in response to questions over the upcoming trip by Liu.

Representatives from the two countries also squared off at the WTO on 8 May during the trade club’s General Council meeting, repeating similar arguments to those raised in Beijing and Washington, along with partaking in a high-energy debate over what the current situation between the economic giants could mean for the wider trading system. (See related article, this issue)

Trade between the two countries is significant, with China as the largest US goods trading partner with US$578.2 billion in total two way goods trade during 2016. The trade deficit between the countries was estimated in 2016 at US$347.0 billion in goods in favour of China, and even higher last year, though the US has a surplus of US$38 billion in services. 

Months of escalation

In recent months, tensions between the two major traders have been on the rise. One of the areas that has drawn the most scrutiny are the US’ move to impose global tariffs on imported steel and aluminium, with exceptions for some countries or country groups pending further negotiations or as a result of an agreement in principle. These tariffs were imposed following a “Section 232” investigation, with the US justifying the move as necessary to ensure national security, in terms of ensuring domestic industry can appropriately supply national defence or critical infrastructure needs.

Separately, the White House has indicated plans to impose tariffs on a list of Chinese products worth approximately US$50 billion or more, as well as potential investment restrictions, to counter China’s alleged violations of intellectual property rights, forced technology transfers, and discriminatory licensing practices. This was following a “Section 301” investigation under domestic US trade law. (See Bridges Weekly, 22 March 2018)

The final list of goods set to face Section 301 tariffs is not yet confirmed, pending public comments and other steps in the US domestic process. The US has, however, submitted a request for WTO dispute settlement consultations to tackle a few specific areas of concern, namely around allegedly discriminatory licensing practices.

China, for its part, has imposed duties on a list of US goods, along with calling for dialogue within the WTO process and a de-escalation in tensions. Last month, Chinese President Xi Jinping also indicated that his government will be looking at making some economic policy changes, including on creating a more enabling climate for foreign investors and stepping up intellectual property rights enforcement, along with slashing tariffs on imported automobiles. (See Bridges Weekly, 12 April 2018)

While the pledges draw a positive response from US President Donald Trump, including via a post on social media platform Twitter, tensions have since remained high between the two trading partners in light of the impending Section 301 tariffs and the existing Section 232 tariffs on steel and aluminium.

In recent weeks, both sides have suggested that they could reach some resolution on these matters, with Trump calling for reducing the US trade deficit with China. Washington officials under the current administration have placed a heavy premium on the need to reduce trade deficits with major trading partners, including through negotiating updates to existing trade deals.

For their part, Beijing officials have highlighted the strong economic ties between the two countries, and have cautioned against the use of unilateral measures that could have damaging systemic and economic implications.

“These problems can be solved through bilateral consultations or within a commonly recognised multilateral framework. However, they can never be solved through unilateral means,” China’s Foreign Ministry spokesperson Lu Kang said in late April.

Negotiators set out wish lists

As the meetings got underway last week, the two sides put forward competing lists of concessions that they hoped to see in order to reach a deal, copies of which were obtained by Bloomberg News and widely cited by other media outlets. 

For example, the US has asked China to decrease the trade deficit between the countries by US$200 billion from current levels by the end of the decade – in other words, reducing it by more than half. Washington has also asked that China drop WTO disputes on the Section 232 tariffs (DS544) as well as on China’s non-market economy status (DS515). 

Other requests included granting additional market access concessions and curbing assistance to the advanced technology sector under the “Made in China 2025” plan, among various others.  

In an editorial by state-sponsored Xinhua, Beijing applauded the continued dialogue, but cautioned the US to be more open to compromise in the talks. “Being candid does not mean being self-centred. In order to bring more constructive results in future talks, the US side needs to be more rational and pragmatic and abstain from making outrageous demands,” the editorial said.

For its part, China has called for Washington to drop the Section 301 probe and related actions, along with asking for a change in Washington’s restrictions on Huawei and ZTE and the amount of high-tech products Chinese companies can buy. China did reportedly put forward the possibility of some concessions, such as curbing automobile import tariffs further. 

After last week’s talks, the White House asserted that the negotiations were open and forthright, though falling short of announcing results. “The delegation held frank discussions with Chinese officials on rebalancing the United States–China bilateral economic relationship, improving China’s protection of intellectual property, and identifying policies that unfairly enforce technology transfers,” a White House press release said.

Xinhua reported that resolving tariff issues, bilateral services trade, and two-way investment were also discussed during the meeting. 

“During the talks, the two sides agreed that a sound and stable China-US trade relationship is crucial for both, and they are committed to resolving relevant economic and trade issues through dialogue and consultation,” Xinhua reported. 

ICTSD reporting; “U.S., China to meet with goal of calming trade tensions,” THE WALL STREET JOURNAL, 30 April 2018; “Steve Mnuchin Will Head to China as Trade Tensions Mount,” THE NEW YORK TIMES, 24 April 2018;  “ ‘Very good chance’ of China trade deal: Trump,” CHINA DAILY, 26 April 2018; “Trump team demands China slash U.S. trade surplus, cut tariffs,” REUTERS, 4 May 2018; “China, U.S. seek to maximize converging interests in economic, trade consultations,” XINHUA NEWS, 5 May 2018; “U.S. and China Make Scant Progress in Trade Talks,” THE WALL STREET JOURNAL, 4 May 2018; “Here’s What the U.S., China demanded of Each Other on Trade,” BLOOMBERG NEWS, 4 May 2018.

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