US-China trade talks: Technology theft may be biggest hurdle

For anyone likely to be hurt by rising trade tariffs between the world’s top two economies, time is running out fast. There’s just over a month to go before a truce in their dispute between the United States and China ends on March 1, and Washington more than doubles tariffs on $200bn worth of imported Chinese goods to 25 percent.

So the stakes are high for talks this week in the US capital between US Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He. The International Monetary Fund lowered its 2019 global growth forecast this month, saying trade tensions could begin to hurt financial markets, risking a more pronounced slowdown.

Analysts say the negotiations could stall over a key US accusation: that China routinely steals technology patents, copyrights and trade secrets in so-called intellectual property – from US firms to boost its economy.

China has reportedly extended an olive branch to the US before the talks. Treasury Secretary Steven Mnuchin told US TV network CNBC last month: “They put on the table an offer of over $1.2 trillion in additional commitments. But the details of that still need to be negotiated. … This isn’t just about buying things. This is about opening markets to US companies and protecting US technology. Those are very important structural issues to [US President Donald Trump].”

China’s reported offer to buy more than $1 trillion worth of US goods over the next six years could go a long way towards reducing the US trade deficit with China, which stood at more than $323bn at the end of 2018. In other words, China exported more goods to the US than it imported from it by that amount.

Reducing the deficit with China was one of the main election campaign promises of Trump, who blames Beijing and many other countries for unfair trade practices that have resulted in the loss of hundreds of thousands US jobs over the past two decades.

Negotiating strategies

Analysts say Beijing’s offer could be part of a strategic move.

“I think it’s calculated to give Trump the ability to declare victory while not damaging China’s interests,” Einar Tangen, a Beijing-based economic and political affairs commentator who also advises provincial Chinese governments, told Al Jazeera.

But Chinese President Xi Jinping most likely also wants to make sure his side comes out of these negotiations looking like winners.

“I think the real issue for China is more about how do you align President Xi’s policy of building up China’s reputation and standing in the world with giving concessions to the United States in a way that doesn’t make China look soft?” independent Hong Kong-based economist Mark McFarland told Al Jazeera.

Hot intellectual property

But an even thornier issue than the US trade deficit is intellectual property. Foreign companies have long complained that they are forced to hand over proprietary technology to Chinese partners in return for permission to sell their products to China’s massive population.

As part of a list of recommendations for the US negotiating team, the American Chamber of Commerce in China said: “An interlocking set of policies … results in foreign companies being coerced or induced to transfer technology as a precondition for market access, or denied market access if they fail to do so.”

The ongoing and high-profile case involving Chinese telecoms equipment maker Huawei underscores such complaints. On Monday, the US Justice Department charged Huawei with violating US sanctions against sales to Iran and stealing trade secrets from T-Mobile, a US partner. The company denies the allegations.

China has also denied that its companies engage in forced technology transfers. But last month, the government proposed a new law that “underlined protection of intellectual property rights of foreign investors and foreign companies, and encouraged voluntary technological cooperation based on business rules”, according to the state-controlled Xinhua news agency.

Line in the sand

Analysts, however, say a red line for Beijing is likely to be any US proposal that may derail its ambitions to become a global leader in areas such as information technology, high-tech transport, energy saving and new materials, its so-called “Made in China 2025” plan.

“The low-hanging fruit – China promising to buy more US goods, allow a little more market access and ramp up a little on intellectual property rights – these things were already in place,” said Vishnu Varathan, head of economics and strategy for Asia at Mizuho Bank in Singapore. “But the bigger, broader strategic goals, the China 2025 reforms, any moves impeding that, I think Beijing would push back very hard,” he told Al Jazeera.

The timing of the trade dispute could be tricky for both sides.

Economic growth in China is slowing down, in part due to the government’s attempt to reduce debts. But the dispute with the US is also hurting its trade-dependent regions such as Hong Kong, where exports fell by 5.8 percent last month.

“The near-term outlook for merchandise trade is challenging amid moderating global economic growth and the uncertainty surrounding the US-Mainland trade relations,” the government said.

And if Chinese growth slows down too abruptly for whatever reason, US companies that are exposed to China will be affected. US industrial equipment giant Caterpillar and chipmaker Nvidia both mentioned weakness in their China markets in their latest results.