Pressure Grows on U.S., China to Forge Trade Deal

Date: February 8, 2019
Source: Wall Street Journal
MEMA Industry News Editor’s Note: In its statement on Dec. 3 regarding the 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.
 
WASHINGTON -- As a deadline approaches for a high-stakes trade deal between the U.S. and China, some top American business figures who fear the economic and market consequences of a failure are pushing both sides to compromise.
 
The two nations are far from an agreement, as U.S. negotiators prepare to meet with their counterparts in Beijing next week.
 
The Chinese are seeking to avoid new multibillion-dollar U.S. trade penalties and had pinned their hope on convincing President Trump to meet one-on-one with Chinese President Xi Jinping in China and hammer out final compromises.
 
But Trump appeared to reject the Chinese overture, saying on Feb. 7 he wouldn’t meet with Xi before the March 1 deadline. The next time the two men are scheduled to meet is at the late June Group of 20 summit in Japan.
 
The uncertainty rattled markets on Feb. 7, with the Dow Jones Industrial Average falling 220.77 points, its steepest drop in two weeks.
 
Among those pushing for a deal is Blackstone Group Chief Executive Stephen Schwarzman, who has been phoning Trump and his senior advisers to warn that the failure to strike a deal will undermine the economy and roil markets, which are anticipating an end to U.S.-China economic hostilities.
 
Uncertainty about China is weighing on business investment and consumer confidence, Schwarzman and others are arguing, people familiar with the conversations say.
 
At the same time, Schwarzman and other business leaders, including former Treasury Secretary Hank Paulson, are urging senior Chinese officials to make enough concessions to U.S. negotiators to allow Trump to claim a victory. That includes agreeing to a way the U.S. can enforce the deal should China fall short of its commitments.
 
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, who are heading the talks next week, lack the usual essentials for a comprehensive deal. The two sides don’t even have a draft accord that specifies where they agree and disagree.
 
“Normally at this stage of negotiations, you’d be exchanging drafts of a joint text,” said Christopher Adams, a former Trump Treasury Department official and trade negotiator who is now at the Covington & Burling law firm. “If it’s all about something enforceable and verifiable, it needs to be memorialized [in a document]. They seem to be some ways yet from having that essential element.”
 
Even so, some of Trump’s outside advisers remain convinced the two sides will reach a deal, even if it is a limited pact that involves mainly purchases and pledges China has already made to gradually open the auto, financial services and other markets.
 
The two sides could then agree to negotiate further over tougher issues, including Chinese subsidies for domestic companies and revamping Chinese state-owned enterprise so they act more like private companies.
 
“There is an absolute focus at the White House on what policies, tactics and agreements they need to do to keep the economy humming” and give Trump a powerful re-election message, said a longtime GOP strategist who talks regularly with senior White House officials. Those calculations include a quick deal with China, he said.
 
Lighthizer, a longtime critic of China’s trade practices who is especially influential with Trump, last week called enforcement the “foundational issue” in the talks. “We have to be in a position where the United States can enforce its rights,” he said, after ticking off the number of times where China hasn’t lived up to commitments.
 
Even there the two sides are in disagreement. The U.S. hasn’t yet decided what sort of enforcement mechanism it wants, and China so far rejects having the U.S. judge its progress and enforce its findings through tariffs.
 
Hudson Institute China scholar Michael Pillsbury, who consults with the White House, said Chinese officials seem confident of a deal because they believe Trump needs the political boost and is being counseled by conciliatory business leaders.
 
“My Chinese sources seem remarkably confident that without any concessions, the Trump administration will drop its tariffs or grant them an extension of many more months” to continue talks, Pillsbury said.
 
Trump called a 90-day truce in the trade battle with China on Dec. 1 during a meeting with President Xi in Buenos Aires. He delayed plans to increase tariffs on $200 billion of Chinese goods to 25 percent from 10 percent until 12:01 a.m. March 2. During that time, U.S. and Chinese officials have met in person and talked on the phone to try to put together a deal.
 
Last week, China’s chief negotiator, Vice Premier Liu He, and a team of Chinese negotiators talked with their U.S. counterparts in Washington. The Chinese team came with very few new proposals, people briefed on the talks said. Instead, the officials largely reiterated pledges made by Xi and other senior Chinese officials to open markets over the next few years.
 
Chinese officials said they would boost purchases of U.S. beef, a former U.S. official said. China blocked U.S. beef imports in 2003 over the mad-cow disease scares. In 2017, China started importing U.S. beef again but kept some restrictions.
 
Some of Beijing’s pledges in the current talks to liberalize financial services were first proposed in November 2017 when Trump visited China, the former official said.
 
James Green, who until last year was the U.S. Trade Representative’s top official in Beijing, said he doubts Chinese negotiators would come up with a raft of new proposals to jump-start talks. The negotiators need to get a consensus from more senior officials for new plans and are wary of being tagged as weak with the U.S., he said.
 
“That government system doesn’t do well in producing new initiatives,” Green said.
 
Given the wide gaps in negotiating positions and the pressure on Trump to make a deal, some trade experts figure he will settle for a partial agreement by March 1 and continue negotiations.
 
Some trade associations worry that Trump will settle for a deal that doesn’t press hard for systemic change in Beijing. Before Trump met with Liu, for instance, the Biotechnology Innovation Organization, a trade group, urged U.S. negotiators to be “resolute and insist on a deal with enduring commitments and not only purchases of U.S. goods.”
 
During an Oval Office session, the president cited six times Liu’s pledge to buy more soybeans, calling it “a sign of good faith.” He didn’t mention the term “structural,” though he did highlight the phrase in his State of the Union address earlier this week.
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