US China Sending Signals, but is Deal Close?

Even before US and Chinese officials sit down this week for a second round of high-level trade talks in Washington, both sides have been signaling a willingness to try and make a deal or at least meet the other halfway.

Whether or not that will be enough to get them across the finish line remains to be seen, analysts say.

Late last week at a forum sponsored by the Center for Strategic and International Studies in Washington D.C., Chinese Ambassador Cui Tiankai signaled China’s willingness to address a range of issues from the deficit to the protection of intellectual property rights.

Deficit detente

Cui said that while it is overly simplistic to say trade deficit means loss and surplus means gain, there is a clear need for better macroeconomic coordination between the two countries.

“A huge deficit for you and a huge surplus for us – I don’t think this should continue,” he said. “I don’t think it will continue. For us, such an imbalance is already a problem rather than a benefit.”

When Treasury Secretary Steven Mnuchin and China’s Vice Premier Liu He led trade delegations earlier this month in Beijing, the deficit loomed large. A leaked list of some of Washington’s demands included a request that China help cut the trade deficit between the two countries by $100 billion a year over the next two years.

Many have scoffed at the figure and the possibility that Beijing could bridge such a seemingly huge gap, but Cui’s remarks are telling.

Gene Ma, head of China research at the Institute of International Finance, said that even though negotiations may be hard, messy and ugly, that is better than not negotiating.

And while there is room for hope, any agreement is unlikely without some compromise, he said.

“A lot of the tough measures put out can eventually be watered down, the tariffs can be postponed, some sectors can be wavered, China can buy more products from the U.S.,” he said. “There is something that both sides can do, but of course there are other sectors that are harder such as technologies.”

China has long been criticized for its trade policies, for forcing foreign companies to hand over technology in return for access to its markets and its rampant problem of intellectual property theft.

In a bid to change that, the Trump administration launched an investigation into Beijing’s policies and trade practices related to technology transfer, innovation and intellectual property.

The president has threatened to levy up to $150 billion in tariffs against China and the deadline for that action is fast approaching.

A public hearing will be held on Tuesday in Washington to discuss the tariffs, and if he chooses, President Trump could place a levy on Chinese goods as early as next week.

If he does, China has pledged to respond in kind, threatening to raise tariffs on some $50 billion in American goods, including soybeans.

IC Bargaining Chip

As for Beijing’s demands, one big concern is Washington’s recent decision to place a seven-year ban on the sale of American components to Chinese mobile phone maker ZTE.

In the first round of talks, Beijing demanded that the United States amend the ruling. And then late last week, just days before talks were set to resume in Washington, the company claimed that its main business operations had ceased due to the ban imposed by the U.S. government.

The move has highlighted the incredible leverage Washington has when it comes to technology, but also limits as well.

Over the weekend, however, U.S. President Donald Trump said that he was working with Chinese President Xi Jinping to throw a lifeline to the company. Trump’s about-face has sparked outrage from some and concern from others. Some argue that if Trump does anything to reverse the ruling, he would be interfering with law enforcement.

Others said the move will conveniently buy the administration more time to strike a deal.

The Wall Street Journal has reported that the two sides are narrowing in on a deal that could see Washington use the ZTE ban in exchange for a reprieve of Chinese tariffs on billions of dollars of American agricultural products.

But there are other obvious reasons for Trump’s shift. The most glaring of them is that while the ban would hurt ZTE and highlights how China lags far behind in the computer chip industry, it is also an issue of American jobs.

“Unlike soybeans, finding customers for such a large amount of semiconductor chips in such a short period of time is not easy and that would not only impact on American jobs but go against Trump’s campaign promises,” said Eric Zhou, a Beijing-based commentator. “And because of that it’s more pragmatic [for Washington] to use the ban as a policy measure and trade war bargaining chip.”

Brian Kopczynski contributed to this report.
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