China to Insist U.S. Lift Huawei Ban as Part of Trade Deal
Date: Friday, June 28, 2019
Source: The Wall Street Journal
Xi to present Trump with terms for settling fight, including asking the U.S. to lift all punitive tariffs
OSAKA, Japan—President Xi Jinping of China plans to present President Trump with a set of terms he wants the U.S. to meet before Beijing is ready to settle a market-rattling trade confrontation, raising questions of whether the two leaders will agree to relaunch talks.
Among the preconditions for a trade agreement, Chinese officials with knowledge of the plan said, Beijing is insisting the U.S. remove its ban on the sale of U.S. technology to Chinese telecommunications giant Huawei Technologies Co. Beijing also wants the U.S. to lift all punitive tariffs and drop efforts to get China to buy even more U.S. exports than Beijing said it would when the two leaders last met in December.
The U.S. chief trade negotiator, Robert Lighthizer, and his Chinese counterpart, Liu He, talked by telephone this week on ways to get the talks back on track and expect to meet in person in advance of the presidents’ Saturday lunch meeting after a Group of 20 summit in Osaka, people familiar with the discussions said. It is far from clear what the two will manage—and whether their bosses will approve their work.
Despite his preconditions, Mr. Xi isn’t expected to take a confrontational tone with Mr. Trump, the Chinese officials said. Rather, they said, he will sketch out what he envisions as an optimal bilateral relationship, which includes China’s help on security issues vexing to the U.S., especially Iran and North Korea.
For their part, U.S. officials said they are going into the meeting looking to see whether their Chinese counterparts are willing to pick up negotiations from where they broke off. U.S. and Chinese officials said the two nations were close to a trade deal in April when, in the U.S. view, China reneged on provisions. It is up to Beijing, U.S. officials feel, to get the talks back on track.
“So we went in and we thought we had a deal, and we went in and then they said, ‘You know, we’re not going to give you certain things that we agreed on,’ ” President Trump told Fox Business Network on Wednesday. Unless China gets the talks back on track, Mr. Trump said, he was ready to go ahead with what he called Phase 2—assessing levies on the remaining $300 billion in Chinese imports not currently hit with tariffs. He said he could start with 10% tariffs on items including such consumer mainstays as clothing, mobile phones and laptop computers.
That was the tactic Mr. Trump used with the prior $200 billion of goods—starting at 10% to put pressure on Beijing without significantly disrupting the U.S. economy, and then shifting to 25% when he felt China was backsliding.
Some corporate lobbyists are hoping talks produce a plan to finish negotiations by a specific deadline. That way, the two sides will be under pressure to deliver—and Mr. Trump would presumably refrain from moving ahead with tariffs during that time period.
The Chinese leader isn’t expected to make big concessions at his meeting with Mr. Trump. That is because he is facing increased political pressure on the home front to stand firm against Washington, which is seen among elite Chinese political circles as unfairly accusing China of a range of misdeeds, from violating intellectual-property protection, improperly subsidizing state-owned enterprises and spying on U.S. firms.
“The Chinese side hopes to set a tone for the relationship going forward,” said a person in Beijing briefed on China’s plans.
Mr. Xi is expected to find a tough audience in Mr. Trump, who continues to vow to raise tariffs and is counting on his hard-nosed stance on China to be a political plus during his re-election bid. “The incentives not to do a deal are getting stronger,” said Michael Pillsbury, a China scholar at the Hudson Institute who consults with the White House. With a deal, “either Xi or Trump would suffer criticism. That wouldn’t have happened six months ago,” he said.
A trade cease-fire, if reached, could give the two sides momentum and a possible path to rapprochement on a number of other tense fronts, including disputes over China’s expansive hold on the South China Sea and the U.S. campaign against Chinese technology firms over security concerns, which in recent days has expanded beyond Huawei, the world’s largest maker of telecommunications gear.
U.S. negotiators have tried to keep the Huawei issue separate from the trade talks, though Mr. Trump has several times talked of packaging Huawei in a trade deal. A Chinese Commerce Ministry spokesman, at a regular briefing in Beijing ,urged the U.S. on Thursday “to immediately rescind the suppression and sanction measures against Huawei and other Chinese enterprises.”
Several U.S. senators pressured the Trump administration on Thursday not to give in to China’s conditions. Sen. Chuck Schumer of New York, the Democratic leader, said the president “cannot go soft now and accept a bad deal that falls short of reforming China’s rapacious economic policies—cyber espionage, forced technology transfers, state-sponsorship, and worst of all, denial of market access.”
Sen. Marco Rubio (R., Fla.) said he was told by Commerce Department officials that Mr. Trump wouldn’t alter U.S. policy toward Huawei as a means of negotiating a trade pact with China, although the GOP president has suggested Huawei could be a bargaining chip in the talks.
“I’ve been told that that’s not the case and that shouldn’t be the case,” Mr. Rubio, a Republican, told The Wall Street Journal. “It’s not really a trade issue as much as it is first a national-security issue and second a wake-up call to the U.S. about how we need to have a counter to Chinese industrial policy.”
As part of a deal, Beijing is also seeking the removal of all additional tariffs imposed by the U.S. since early last year—25% levies on $250 billion in Chinese imports. Beijing has said U.S. demands for Chinese purchases of U.S. goods should be reasonable. Chinese officials said that meant they must be based on domestic Chinese demand, rather than requiring China to divert purchases it now makes from other countries.
Some Chinese government advisers have said U.S. negotiators raised the purchasing target to an additional $300 billion a year in exports from current levels. In talks last December, the discussed figure was $200 billion. Even hitting that $200 billion number would be unlikely. It would require more than doubling of U.S. exports to China, which were $120.1 billion in 2018 and $129.8 billion in 2017 before the trade battle began.
Chinese officials have also repeatedly said the text of any agreement should be balanced—meaning the U.S. should make concessions to China as well. China hasn’t publicized its demands. In the past, Beijing has asked for more high-tech exports from the U.S. and an easier path for Chinese to get visas and business approvals in the U.S.
In recent weeks, Mr. Xi has been seeking to increase Beijing’s bargaining position with Washington. Last week, Mr. Xi met with North Korean leader Kim Jong Un in Pyongyang, becoming the first Chinese leader to visit the reclusive state in 14 years.
By strengthening China’s ties with North Korea, especially amid deadlocked talks between Pyongyang and Washington, Mr. Xi was sending a message to Mr. Trump that China could still help the U.S. ease tensions on the Korean Peninsula. Some U.S. officials said they believe Mr. Xi is playing a positive role.
The mood and agenda of the Osaka G-20 meeting contrasts sharply with the last time the leaders met at a Buenos Aires G-20 summit in December. Then, the two sides met for a leisurely dinner. Chinese officials saw China’s economy as shaky, and Mr. Xi was keen for a deal to shore up business confidence.
Soon after, Canada arrested a senior executive of Huawei at the U.S. request on charges related to violating Iran sanctions, and Washington began to ratchet up moves to slow the flow of technology to Huawei and portray it as an espionage threat. Huawei denies the accusations.
More nationalistic voices in the Communist Party and in the public gathered volume in accusing Washington of trying to use the trade fight to stop China’s rise and undermine the state-led economic model that has delivered strong growth for decades.
Mr. Trump faces his critics too—and many Democratic presidential candidates willing to pummel him if he accepts what is seen as a weak deal with China after hitting U.S. consumers with higher bills through tariffs. At Wednesday night’s Democratic primary debate, four of 10 candidates picked China as the greatest threat facing the U.S.