China Is Set to Take a Hard Line on Trump’s Trade Demands
Posted April 30, 2018 6:10 p.m. EDT
BEIJING — Staking an assertive negotiating stance, China says it will refuse to discuss President Donald Trump’s two toughest trade demands when U.S. officials arrive in Beijing this week, potentially derailing the high-level talks.
The Chinese government is publicly calling for flexibility on both sides. But senior Beijing officials do not plan to discuss the two biggest requests that the Trump administration has made over the past several months, according to people involved in Chinese policymaking. Those include a mandatory $100 billion cut in the United States’ $375 billion annual trade deficit with China and curbs on Beijing’s $300 billion plan to bankroll the country’s industrial upgrade into advanced technologies like artificial intelligence, semiconductors, electric cars and commercial aircraft.
The reason: Beijing feels its economy has become big enough and resilient enough to stand up to the United States.
A half-dozen senior Chinese officials and two dozen influential advisers laid out the Chinese government’s position in detail during a three-day seminar that ended here late Monday morning. The officials and most of the advisers at the seminar gave an overview of China’s economic policies, including an in-depth review of the country’s trade policy, to make sure China’s stance would be known overseas. All of the officials and most of the advisers at the seminar insisted on anonymity because of diplomatic sensitivities.
It is not clear what will happen when the two sides sit down this week or whether either will find a reason to waver. Still, the Chinese and U.S. positions are so far apart that China’s leaders are skeptical the two sides can find common ground by the end of this week. They are already raising the possibility that Chinese officials may fly to Washington a month from now for further talks.
“I don’t expect a comprehensive deal whatsoever,” said Ruan Zongze, executive vice president of the China Institute of International Studies, which is the policy research arm of China’s Foreign Ministry. “I think there is a lot of game playing here.”
Beijing is frustrated with Trump’s threats to impose tariffs on $150 billion in Chinese goods and dismayed by suggestions in the West that China has a weak bargaining position. Chinese officials think the country’s one-party political system and President Xi Jinping’s enduring grip on power — particularly after the repeal of presidential term limits in March — mean that China can outlast the United States and Trump in any trade quarrel.
The Chinese government believes Trump’s background as a businessman means that at some point he will agree to a deal. Seminar participants also reaffirmed previous Chinese trade policy offers to further open the country’s financial and automotive sectors, though not in ways that would impact China’s industrial modernization program, called Made in China 2025. They also suggested that China would be willing to tighten its intellectual property rules so as to foster innovation within China as well as protect foreign technologies from counterfeiting and other illegal copying.
China is insisting that the parameters of any negotiations be limited, and that the tariff threat be removed before a final deal can be struck.
Chinese officials have reached out to Treasury Secretary Steven Mnuchin, who has reacted positively to China’s overtures in the auto and financial sectors. Mnuchin, a former Goldman Sachs executive who will be on the Trump administration’s team in Beijing later this week, has sought to calm investors worried that the rhetoric between Washington and Beijing could break out into a full-blown trade war.
China’s position is that the bilateral trade imbalance arises from differences in savings rates. Households in China save roughly two-fifths of their income. Americans, on average, save almost nothing. So money from China tends to flow to the United States, buying factories, technology companies, real estate and more, and Americans in turn spend much of that money to buy goods from China. Many economists in the United States, including some at the Treasury, share that view.
By contrast, many trade lawyers, lawmakers on both sides of the aisle and Trump contend that the trade deficit stems to a large extent from unfair practices, including cheap loans by state-controlled banks to exporters.
China is ready to discuss shrinking the $375 billion annual trade deficit. But it wants to do so by buying more high-tech U.S. goods. Washington has long blocked such deals because of concerns that they may have military value. China is also willing to buy more oil, natural gas, coal and other goods from the United States, and to help finance the extra pipelines and other infrastructure that would be needed to move them to China.
A senior Chinese government official said that Beijing is unwilling to negotiate with the United States on any curbs on Made in China 2025, which includes large-scale government assistance to favored industries in advanced-technology manufacturing. China perceives the U.S. demands as an attempt to stop China’s economic development and technological progress, the senior Chinese official said. Germany and other countries also have industrial policies, and the United States has not objected to them, he added. U.S. and European officials have argued that those policies elsewhere are much narrower and less ambitious.
Other advisers and officials said that the United States had misunderstood the Made in China 2025 industrial policy. They expressed hope that it might be possible to resolve differences by explaining the program better and making very small tweaks to it — a stance that still may not appease the Trump administration.
The Chinese government is not simply throwing money, land and other resources to favored industries like robotics, artificial intelligence, semiconductors and aircraft manufacturing, they said. China is engaged instead, they contended, in a carefully thought-out program that measures potential profits for each dollar of investment. So China’s program bears some resemblance, they said, to private sector investment programs in the West.
One subject was repeatedly and conspicuously avoided by all officials throughout the seminar, even when advisers occasionally speculated about it: whether China might someday try to link trade disputes to national security issues.
China has been deeply involved in international pressure on North Korea to give up its nuclear weapons and ballistic missiles, an issue of high importance to the Trump administration. Beijing also wants to someday assert control of Taiwan, a self-governing democracy that Beijing regards as a renegade territory.
Tsinghua University’s new Academic Center for Chinese Economic Practice and Thinking organized the seminar, which was held at Tsinghua and two other venues in western Beijing. Xi graduated from Tsinghua, which is in Beijing and is China’s top university, and he has filled much of the senior ranks of his government with Tsinghua professors and graduates.
In some respects, the hard stance struck by Chinese officials reflects a hardening of public attitudes in China.
In mid-April, the United States barred U.S. companies from selling their wares to a Chinese telecom equipment maker, ZTE. The move is seen as potentially crippling to the Chinese company, which needs U.S. chips and software to power the smartphones and equipment it sells around the world.
Washington officials cited ZTE’s repeated violations of sanctions against Iran and North Korea, but many in China saw it as a reminder by the United States that sizable sectors of the Chinese economy still rely on U.S.-made goods. Much of the Made in China 2025 policy is aimed at reducing that dependence.
The ZTE case “has changed a lot of Chinese people’s opinion,” said Ruan, of the China Institute of International Studies. “In the past, people saw us as interdependent.”