China Raises Hopes for U.S. Trade Deal

Date: November 27, 2019
Source: Wall Street Journal

MEMA Industry News Editor’s Note: Regarding trade negotiations with China, MEMA calls for an agreement that will allow U.S. companies to remain competitive in a global marketplace while protecting intellectual property (IP) rights. MEMA supports bilateral engagement, where China and the U.S. work together to protect the valuable IP of our members. Detailed information about tariffs as well as other recent trade actions can be found on the MEMA Trade Resources Page. For more information about MEMA’s trade positions, contact Catherine Boland.

China offered its most positive message in recent weeks that trade talks with the U.S. were going smoothly after a phone call Tuesday between the countries’ top negotiators, raising the prospects for a limited deal sought by both nations.

China’s Commerce Ministry said the two sides had “reached a consensus on properly resolving related issues.” The message, though short and formulaic, was notable because it followed a call between China’s chief trade negotiator, Liu He, and his U.S. counterparts, Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, and suggested behind-the-scenes conversations have instilled confidence in Beijing that the two sides could overcome their differences.

The upbeat language came after the Chinese Communist Party’s top policy-making body and the state’s cabinet over the weekend issued guidelines for stronger protection of intellectual-property rights, a core concern for Washington.

“I think China is eager to get a deal done,” said Jingzhou Tao, a Beijing-based lawyer for Dechert LLP who advises multinationals on business in China. “They cannot afford to have this uncertainty overshadow their economy.”

The U.S. side is also feeling pressure to make a deal both to give President Trump a win to bolster markets, which are expecting a pact, and to boost his re-election effort. U.S. stocks closed moderately higher on Tuesday, with the Dow Jones Industrial Average up 0.2 percent to 28121.68.

White House political advisers have debated for months whether the president is better served by having a trade agreement with China he can tout, or a continuing dispute that would showcase his unwillingness to yield to Beijing.

A preliminary pact would serve both purposes, his advisers said. Mr. Trump, a Republican, could say he managed to get an agreement that opened up the Chinese economy somewhat, while arguing that only he could succeed in pressuring Beijing to make fuller concessions later.

The positive statements from Beijing came as another sensitive issue remains unresolved. Congress passed a bill last week by veto-proof majorities meant to show U.S. solidarity with pro-democracy protesters in Hong Kong. The president has suggested he has reservations about signing the legislation amid the high-stakes trade negotiations.

Beijing is concerned Mr. Trump will approve the Hong Kong bill, which imposes annual U.S. reviews of whether China is respecting Hong Kong’s autonomy. Beijing views such a condition as an infringement of its sovereignty and an extension of support to pro-democracy protesters.

A presidential signature on the bill could make it tough politically for President Xi Jinping of China to sign a trade deal any time soon.

While both sides said they are making progress on trade, the discussions have been held at the ministerial level. Neither Mr. Trump nor Mr. Xi has signed on to an interim agreement. In the past, prospective deals have fallen apart because of objections by either leader.

Most significantly, the two sides continue to negotiate not only to hold off on new tariffs but to cut existing ones.

Beijing and Washington are seeking an interim agreement that, at minimum, would put a hold on U.S. tariff increases while China gives some assurance that its state-controlled companies would buy more U.S. farm products.

The U.S. is also pressing for Beijing to agree formally not to keep its currency undervalued to help its exporters and to toughen intellectual-property protection. Administration officials said they don’t expect more fundamental issues, such as Chinese subsidies for state-owned companies, the behavior of these enterprises and Chinese pressure on U.S. companies to transfer technology to Chinese partners to be a big part—or possibly any part—of an interim deal.

“The political conditions are no longer conducive to a big deal,” said Clete Willems, a former White House trade negotiator now at the Washington law firm Akin Gump. “That doesn’t mean an incremental deal is a bad thing. The U.S. can make progress on some issues while limiting escalation. From a broader standpoint, the two sides need to learn to work together.”

The two also have been discussing where—or whether—Messrs. Trump and Xi would get together to sign a partial deal. Those plans fell apart after Chile canceled this month’s leaders summit of the Asia-Pacific Economic Cooperation forum. Another possible location for signing a deal would be at the World Economic Forum in Davos, Switzerland, in January. Mr. Trump has talked for months about Switzerland as a “neutral location” for a signing ceremony between the two nations, say people familiar with the discussions.

White House economic adviser Larry Kudlow also said recently that a deal may not require a summit of the two leaders. That could speed the conclusion of a pact. The Chinese are wary that a meeting with the unpredictable Mr. Trump could lead to him making new, unforeseen demands.

Mr. Liu made the call Tuesday after U.S. negotiators passed on making plans to visit China this week, as the Chinese side had hoped. The Commerce Ministry said both sides agreed to keep in touch on remaining issues for a so-called phase-one deal, without saying what the gaps were or providing a date for any meeting.

The sticking point for Beijing remains the Trump administration’s reluctance to roll back tariffs on the majority of Chinese imports. The tariffs have pressured China’s economy, which is growing at its slowest pace in decades.

Neither side wants talks to fall apart. One important deadline is Dec. 15, when Mr. Trump has threatened to impose punitive tariffs on about $156 billion worth of Chinese smartphones, laptops, toys, videogames and other products.

Many in the Trump administration are seeking to avoid those tariffs as much as the Chinese because they fear a price increase in top-selling consumer goods would lead to a consumer backlash against the China trade offensive. Farmers are already restive because Chinese retaliatory tariffs have targeted U.S. agricultural exports.

The administration previously postponed tariffs on the consumer goods. U.S. businesses and investors think it could delay the tariffs again should it believe talks are making progress.

The Chinese side is trying particularly hard to keep talks on track. It has been updating the Chinese public more regularly, a contrast with April, when it was the U.S. trumpeting optimism for a trade deal and China that stayed reticent. Those talks collapsed at the 11th hour, which the U.S. blamed on Beijing for reneging on promises. This time, China has sent plenty of positive signals in addition to its warm words on Tuesday and its weekend pledge on intellectual-property protections. China lifted a four-year-old ban on U.S. poultry imports this month and has continued with a steady stream of modest purchases of U.S. farm goods.

On the U.S. side, regulators have loosened restrictions on Chinese telecom giant Huawei’s business in what some saw as an attempt to ease tensions with Beijing.

On Tuesday, Commerce Department officials released their plan for bolstering telecommunication security, declining to name either China or Huawei as a foreign adversary.

In its promise to bolster intellectual-property protections, Beijing set benchmarks for improvement by 2022 and 2025. But some experts, including Mr. Tao of the law firm Dechert, said the vaguely worded guidelines offered few details on how leaders would achieve these goals.

Beijing said it would increase penalties for trademark infringement and instructed local officials to implement guidelines for better protecting intellectual property, but held off on laying out how officials who don’t stop violations would be held accountable.

“It’s more like they’re trying somewhat to meet U.S. requirements in the trade talks,” Mr. Tao said.

—Grace Zhu and Katy Stech Ferek contributed to this article.

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