Trump’s Charm and Threats Aren’t Working on China. Here’s Why.

Posted May 21, 2018 6:15 p.m. EDT

China has called President Donald Trump’s bluff.

Chinese negotiators left Washington this weekend with a significant win: a willingness by the Trump administration to hold off for now on imposing tariffs on up to $150 billion in Chinese imports. China gave up little in return, spurning the Trump administration’s nudges for a concrete commitment to buy more goods from the United States, and avoiding limits on its government-led efforts to build new high-tech Chinese industries.

The trade fight is far from over. And large Chinese technology companies in particular could still be vulnerable if the United States decides to start punching again, with administration officials appearing to back away from Trump’s pledges to help ZTE, a Chinese telecommunications company hit with severe U.S. penalties.

Still, the latest round of negotiations showed that a confident China could be more than a match for divided U.S. negotiators who have made often discordant demands. Trump, who proclaimed this year that “trade wars are good, and easy to win,” and his advisers may find that extracting concessions from China is much harder than they expected it would be.

China’s propaganda machine took a victory lap after the talks, proclaiming that a strong challenge from the United States had been turned aside, at least for now.

“Whether in Beijing or Washington, in the face of the unreasonable demands of the United States, the Chinese government has always resolutely fought back, never compromised, and did not accept the restrictions set by the other side,” the official Xinhua news service said in a commentary Sunday.

In a cheeky expression of China’s rising power, two juxtaposed photos were widely circulated on Chinese social media, a post that was shared (but later deleted) by the Communist Youth League. One photo was taken during the trade talks in Washington, appearing, if somewhat biasedly, to trumpet the youthfulness of Chinese delegates compared with U.S. lawmakers. Another, dated from 1901, showed the opposite as representatives from China and colonial powers signed an accord to end the Boxer Rebellion, considered a national humiliation.

On Monday, Trump defended the approach, promoting the talks as a success. On Twitter, he said barriers would “come down for the first time,” and China will “purchase from our Great American Farmers practically as much as our Farmers can produce.”

But U.S. negotiators were dealing with a China eager to show its strengths. During last week’s talks, China for the first time sent a strategic bomber to an island reef in the South China Sea, an area where Beijing has laid claims of sovereignty — claims the United States has challenged.

China’s success partly comes from its ability to stick to a single strategy in trade. Even as Beijing has shown a willingness to talk and make peace offerings in the form of multibillion dollar import contracts, it has held fast to its refusal to make any commitment for a fixed reduction in its trade gap with the United States. The trade imbalance between the countries has actually widened since Trump visited Beijing in November and oversaw the signing of import deals on everything from beef to helicopters.

Beijing also has not bent on its Made in China 2025 initiative, an industrial modernization program that Washington and U.S. business groups complain forces foreign companies to share their best technology while potentially creating state-sponsored rivals.

China said Monday that it welcomed more talks.

“The two sides have come to recognize that only through consultation can we properly handle trade disputes,” Lu Kang, the spokesman for China’s Foreign Ministry, said during his daily news briefing Monday.

Chinese propaganda was quieter on signs that the Trump administration may be backing away from Trump’s pledge to help ZTE, which Washington moved to punish for breaking U.S. sanctions on Iran, North Korea and other countries.

A ban on selling U.S.-made chips and other equipment to ZTE has brought the company’s factories to a halt. But on Sunday, Treasury Secretary Steven Mnuchin said the United States was not prepared to revisit the penalties and that Trump wanted to be “very tough” on ZTE.

China’s problems in the area of technology could get worse. U.S. officials are investigating whether a much bigger Chinese tech company, Huawei Technologies, also flouted U.S. trade controls. Huawei has said it adheres to international conventions and local laws.

Despite that vulnerability, China has plenty of negotiating strengths.

White House trade officials have more expertise with trade law, but China has a small but cohesive team of negotiators who report directly to Liu He, a vice premier and nearly lifelong friend of Xi Jinping, the country’s top leader. The group has also streamlined Beijing’s ability to make economic policy decisions, a benefit in evaluating the impact of any concessions to the United States. Policy decisions that once took a month can now take as little as a day, said a person with a detailed knowledge of the process who insisted on anonymity because of the political sensitivity of the issue.

By contrast, the United States has shifted its demands and struggled to send out a consistent message.

The internal divisions were on display again Sunday. Mnuchin said in the morning that any tariffs were on hold. Later that day, Robert E. Lighthizer, the U.S. trade representative, issued a statement in which he said, “As this process continues, the United States may use all of its legal tools to protect our technology through tariffs, investment restrictions and export regulations.”

In March and early April, Trump and his trade advisers threatened to impose tariffs unless Beijing agreed to curb long-term subsidies for high-tech industries.

The president then shifted to conciliation.

His financial policy advisers, led by Mnuchin, sought a fixed reduction of up to $200 billion in the $375 billion U.S. trade deficit with Beijing. China’s trade negotiators resisted again, and the administration ended the weekend with a joint statement by officials from the two countries that did not commit China to any specific concessions. Chinese and U.S. officials did exchange lists last week of extra goods that China might buy to narrow the deficit, but China only committed to continue buying ever-rising quantities of U.S. food and fossil fuels, a position reflected in the joint communiqué issued at the close of the talks.

The United States has also explicitly tied the trade talks to its efforts to negotiate with North Korea. Xi met with Kim Jong Un, North Korea’s leader, in northeastern China about two weeks, ago. It is not clear what they discussed, but Trump suggested Thursday that China might have prodded Kim to threaten to cancel the summit meeting between the two leaders planned for June 12.

While experts on Chinese policymaking are deeply divided on Xi’s influence, Trump’s perception of a link indicates that at the very least the North Korea issue may have been a constraint on U.S. officials’ willingness to confront their Chinese counterparts.

Even in small ways, the White House has sent mixed messages. Liu last week held meetings with both Trump and Vice President Mike Pence in Washington even as Liu resisted U.S. pressure for compromises. Chinese official media presented the move as a minor victory, as Liu was not allowed to meet with Trump at a meeting in February. While Liu held a lower-ranked government position then, his eventual rise to a top post had already been widely signaled.

In some ways, Beijing may find it almost impossible to agree to U.S. demands. The United States exports only $130 billion in goods a year to China. Finding more goods to buy to reduce China’s trade surplus by $200 billion would be extremely difficult, except if China cut its own exports to the United States.

“It is kind of unrealistic — and if Chinese officials agree, they will face a lot of pressure from public opinion,” said Tu Xinquan, the head of the China Institution for World Trade Organization Studies at the University of International Business and Economics in Beijing.