Low expectations: US-China trade talks seen not achieving much

Officials and experts see China unwilling to change way it runs its economy, and US using security as an issue.

    After 14 months of tit-for-tat trade actions, neither China or the US seem willing to back down on key issues including Chinese state-owned firms and technology [File: Jason Lee/Reuters]
    After 14 months of tit-for-tat trade actions, neither China or the US seem willing to back down on key issues including Chinese state-owned firms and technology [File: Jason Lee/Reuters]

    American and Chinese officials will restart trade talks at the end of this week, but any agreement the world's largest economies carve out is expected to be a superficial fix.

    The trade war has hardened into a political and ideological battle that runs far deeper than tariffs according to trade experts, executives, and officials in both countries.

    China's Communist Party is unlikely to budge on US demands to fundamentally change the way it runs the economy, while the United States will not backtrack on labelling Chinese companies as national security threats.

    The conflict between the two countries could take 10 years to resolve, White House economic adviser Larry Kudlow warned on September 6. Yu Yongding, an influential former policy adviser to China's central bank, told Reuters that China was in no rush to make a deal.

    Presidents Donald Trump and Xi Jinping may hammer out an interim agreement in October to soothe stock markets and claim political victory after this week's lower-level talks.

    But any final agreement is "extremely unlikely to meaningfully address the Chinese structural reforms" sought by the US and other countries, said Kellie Meiman Hock, a former US Trade Representative official and managing partner with McLarty Associates, a policy and government consultancy.

    Negotiators have made little discernible progress on the many points of disagreement since negotiations broke down in May, sources briefed on the talks say.

    Issues divide

    Beijing is unwilling to address the way it supports state-owned companies and subsidises their products in coming talks, sources in China and the US say. The US continues to label Chinese tech company Huawei a national security threat, and dangle the threat of new tariffs against China.

    "The ultimate result of talks must be the dropping of all tariffs," said He Weiwen, senior fellow, Chongyang Institute for Financial Studies at Renmin University. "This is the baseline for China." He is not optimistic about the talks' prospects.

    Since trade negotiations between the world's largest economies collapsed in May, both countries have also broken promises and traded public insults. The mood is upbeat, but a single Trump tweet could turn that around, analysts say.

    "They're locked in this uncomfortable embrace," said William Reinsch, a former senior Commerce Department official and Center for Strategic and International Studies fellow.

    "Both presidents have undercut their negotiators and neither side can rely on what the other has said," he said.

    'Tectonic shift'

    Trump's "tough on China" stance has swept in a new way of thinking about Beijing in Washington, despite the unpopularity of many of his other policies. The US Congress, bitterly divided along partisan lines on most issues, is united about the need for systemic reform in China.

    Democrats running against Trump are not likely to repair the China relationship if they take the White House in 2020. In a debate on September 12, presidential candidates used terms like corruption and theft to discuss China's trade practices.

    "There's been a tectonic shift," said Warren Maruyama, former general counsel for the US Trade Representative's office and a partner with law firm Hogan Lovells.

    "The old idea that China was in the middle of free-market economic reforms that would lead them our way is effectively dead," Maruyama said. "There's bipartisan support for a tougher China policy."

    Legislators are responding, with several China-related bills making their way through Congress from legislation to punish Beijing for human rights abuses against Muslims in Xinjiang and to support protesters in Hong Kong.

    Additionally, the 2020 National Defense Authorization Act, or NDAA, could include provisions targeting China on issues ranging from technology transfers to the sale of synthetic opioids.

    Political pressure

    Trump faces a worsening economy and recession fears at home, thanks in part to the tariffs he has enacted, but key constituencies have stood by him so far. US executives in China say Beijing is miscalculating if it thinks the trade war will undermine Trump's political support.

    "If anything, the trade war has unified support in the business community," one senior American executive in China said.

    "The problems are deep, and they are structural," said Craig Allen, a former senior US Commerce Department official who now heads the US-China Business Council. The countries' hi-tech sectors may be permanently decoupled, he said, thanks to concerns over Chinese espionage, cyber hacking and intellectual property theft.

    China's Communist Party also faces a slowing economy as it prepares to celebrate 70 years of ruling the country on October 1.

    Many in Beijing believe that Trump's erratic approach to the trade war this year has provided Xi with convenient short-term political cover, allowing him to blame White House tariff increases instead of domestic policies for the slowdown.

    In a throwback to the Mao Zedong era, Xi told cadres this month that there must be a "resolute struggle" against any risks and challenges to the party's leadership, the country's sovereignty and security and anything that threatens the country's core interests.

    Investments between China and the US dropped to the lowest six-month level in five years in the first half of this year, a study by the research firm Rhodium Group shows.

    Foreign direct investment and venture-capital deals between the two countries fell to $13bn in the period, down 49 percent from the first half of 2018.

    SOURCE: Reuters news agency