Trade talks seen as unlikely to mend US-China divide

Beijing/WashingtonUpdated: Sep 17, 2019, 11:27 AM IST
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File photo: US President Donald Trump and China's President Xi Jinping Photograph:(Reuters)

Story highlights

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

US 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, trade experts, executives, and officials in both countries say.

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

The conflict between the two countries could take a decade 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 the 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.

'Techtonic 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 aren't 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."

Lawmakers 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.