U.S.-China Trade Talks Set to Resume With Modest Expectations

Date: Saturday, July 27, 2019
Source: Sourcing Journal

Delegations may tackle smaller issues instead of sweeping deal

Negotiators for the U.S. and China will face off in Shanghai this week in another attempt to piece together a trade accord amid much lowered expectations for the kind of sweeping deal that appeared within reach this spring.

People close to the talks said a major breakthrough is unlikely on points that led to negotiations breaking down in early May, but that modest wins might be obtainable. That includes the U.S. insistence that China commit to legal changes to protect intellectual property and abandon state subsidies to business, and Beijing’s demands that the U.S. drop all tariffs as a condition for a deal.

President Trump played down the odds of a significant breakthrough. “I don’t know if they’re going to make a deal,” he said Friday. “Maybe they will, maybe they won’t.”

Among the possible smaller achievements that might be obtainable, close observers said, would be a commitment by China to purchase more agricultural products and action by the U.S. to relax its ban on U.S. companies selling to telecommunications equipment giant Huawei Technologies Co., which Mr. Trump has already agreed to do in general terms.

Progress toward a small agreement on Huawei and agricultural purchases could set the stage for negotiators to tackle bigger issues in a follow-up meeting in Washington, the people following the talks said.

“There are things, besides buying a million bags of soybeans, that China can do on the structural issues that would actually be helpful and would make a difference,” said William Reinsch, a senior adviser at the Center for Strategic and International Studies. “But that’s at best 30% down the road of what the U.S. has been demanding.”

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to arrive in Shanghai on Tuesday to meet with China’s top negotiator, Vice Premier Liu He. The meeting in Shanghai was scheduled at China’s request.

The two sides have taken limited steps on the issues of Huawei and agricultural purchases, and moving beyond those measures could still be difficult. “Regardless of what happens with issues like Huawei, the Trump administration is clearly focused on obtaining structural changes to end market-distorting practices in China,” said Stephen Vaughn, former general counsel at the Office of the U.S. Trade Representative under Mr. Lighthizer. “The key issue now is whether China is prepared to make such changes.”

U.S. national security officials have identified Huawei gear as a potential pipeline for Chinese espionage, and China hawks in Congress and elsewhere stand ready to denounce Mr. Trump for any effort toward Huawei that could be seen as appeasement.

Mr. Trump, a Republican, enlisted allies last week, gathering chief executives of seven big companies in the Oval Office who “expressed strong support of the president’s policies” on Huawei, according to a White House statement.

Mr. Trump said at the meeting that he agreed to “timely licensing decisions” that would allow companies to resume sales to Huawei on products not related to the security concerns. But that may not be enough to satisfy Beijing, said Wei Jianguo, a former vice minister of commerce who is now with the government-backed China Center for International Economic Exchanges.

U.S. moves to relax restrictions on U.S. companies selling technology to Huawei have so far fallen short of China’s expectations for a complete removal of restraints, Mr. Wei said. The Trump administration wants firms to apply for exemptions, something Mr. Wei called a “U.S.-concocted method.”

Without concrete action on Huawei, Mr. Wei said, China is unlikely to make commitments on U.S. farm purchases.

“They won’t mention core issues that are sensitive, like how much we will buy,” he said. “We already won’t agree.”

Ker Gibbs, president of the American Chamber of Commerce in Shanghai, said China will be looking to see how flexible the U.S. can be on Huawei. “The situation is like having your hands around someone’s neck, but saying ‘relax, I’m not going to squeeze,’ ” he said of Washington’s tactics. “It’s not a comfortable position to be in.”

When the U.S. and China held talks at the beginning of the year, officials made early progress on issues related to purchases of U.S. goods and services and worked under a 90-day timeline set by Mr. Trump. In a January visit to Washington for negotiations, Mr. Liu offered for China to buy five million additional metric tons of soybeans.

This time around, the two sides appear to be taking their time, and China has hardened its position on issues, including on agriculture purchases. The size and types of purchases of U.S. agricultural products will be up to those companies buying the goods, China’s Commerce Ministry said Thursday.

“There doesn’t seem like there’s that much enthusiasm on either side,” said Kenneth Jarrett, senior adviser at the strategy firm Albright Stonebridge Group in Shanghai. “Maybe they feel like they each have the upper hand.”

Nevertheless, China has taken tentative steps toward increased purchases of U.S. farm products in recent days.

The Chinese state-run news agency, Xinhua, reported Sunday that Chinese firms since July 19 have asked U.S. companies about prices of agricultural products. Several million tons of U.S. soybeans have been shipped to China since the two countries’ leaders agreed to resume trade talks last month at the G-20 summit in Japan, the report said, citing the country’s top economic-planning agency and the Commerce Ministry. It didn’t specify the amount.

“Given the false starts when Trump first announced this, we are very cautious about how much we can realistically expect from any new sales” of agricultural products to China, said Jessica Wasserman, a partner in the international trade and government relations practice at Greenspoon Marder LLP. “If there are any purchases, they still will likely be well below what the administration has been pushing for.”


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