US-China trade talks conclude as hopes of progress rise
Last Modified: 10:23 PM, Wed Jan 09, 2019

James Politi in Washington and Tom Hancock in Shanghai

FT.com. 10 January 2019
Analysts warn that tricky questions remain despite desire to reach a deal

US and China officials discussed ways to implement and enforce a trade deal between the two countries, as three days of negotiations wrapped up in Beijing amid growing optimism that the dispute weighing on their economies could be defused.

This week’s session involving mid-level officials was considered crucial in terms of laying the ground work for higher-level negotiations between now and March 2, the deadline for an agreement set by US president Donald Trump and Xi Jinping, his Chinese counterpart.

The talks unfolded amid growing concerns about a global  economic slowdown,  as well as financial market volatility, that have added pressure in both Washington and Beijing to put an end to the tit-for-tat tariff escalation that build it up over the past year.

China’s ministry of commerce said in a statement on Thursday that the talks were “extensive, deep and meticulous” and vowed to maintain contact.

The Office of the United States Trade Representative summed up the week’s talks on Wednesday saying that officials had discussed China’s pledge to buy a “substantial amount” of agricultural, manufacturing, energy and other products from the US, to rebalance the bilateral trade deficit.

The US has also been pressing the Chinese to tackle the thorniest question in their economic relationship, which relates to US complaints that China is stealing intellectual property from US companies and forcing them to hand over trade secrets and sensitive technologies in order to spur its own innovation. As the talks have become more detailed, the US is also keen to secure ironclad mechanisms to ensure that Beijing will stick to the commitments it makes. 

“Officials discussed the need for any agreement to provide for complete implementation subject to ongoing verification and effective enforcement,” USTR said.

Analysts cautioned that while the atmosphere had improved, there were still big differences between Washington and Beijing, so there was plenty of scope for the talks to fall apart, which would trigger a new escalation in tariffs. 

“There are definitely encouraging signals but at the same time we are by no means out of the woods with these talks,” said Wendy Cutler, a former US trade negotiator at the Asia Society Policy Institute in Washington. The signs of progress over the past few days included the fact that they were extended by 24 hours compared with the original plans, and that Liu He, China’s top economic official, dropped into the negotiations at one point. China has not yet characterised the talks. 

“Trade talks between China and the US have concluded, and the Chinese side will soon release the results,” Chinese state media cited a foreign ministry spokesman as saying on Wednesday afternoon.

Mr Trump tweeted on Tuesday that the trade talks in Beijing were “going very well!”, with a member of the US trade delegation to Beijing telling Reuters that “its been a good one for us,” when asked about progress in the talks.

Markets  reacted positively, with Shanghai’s CSI 300 up 1.95 per cent by early Wednesday afternoon, Japan’s Topix was up 1.1 per cent and Hong Kong’s Hang Seng index rose 1.99 per cent, as oil prices hit a three-week high.

The trade war that started last spring has led to tariffs being levied on more than $350bn of bilateral trade. Beijing has repeatedly offered to increase purchases of US agricultural and energy goods while Washington has pushed for concessions on market access and intellectual property protection for American companies.

Lu Xiang, a researcher at the Chinese Academy of Social Sciences, a state-run think-tank, said he did not believe Beijing would deviate significantly from its previous proposals as officials hoped that a weakening US economy would add to pressure on Washington to accept a quick deal.

“Maybe the US just realised that it’s a good offer now. The US seems to realise that the damage trade war causes is unbearable. The best option for the US is to collect a trophy and retreat,” he said. 

The two sides in December agreed on a three-month freeze on new tariffs, buying Beijing time to carry out a fiscal and monetary stimulus to boost flagging growth.

Arend Kapteyn, global head of economic research at UBS, said “the willingness to negotiate on the US side is starting to increase” as evidence of the trade war’s impact on growth becomes evident in both countries.

But he noted that Washington’s dual focus on reducing its trade deficit with China and gaining greater market access and better treatment of US companies in the country added “confusion” to the talks. 

“If everything was done to open up the [Chinese] market and deal with these other issues, that wouldn't do anything about the bilateral deficit,” he said. 

The US delegation is led by Jeffrey Gerrish, the deputy trade representative, who is close to Robert Lighthizer, the US trade representative, one of the most  hawkish officials on China in the Trump administration. Mr Lighthizer has pushed for concessions on China’s industrial policy.

But Beijing views state control of its economy as essential to economic growth and is unlikely to compromise. 

“It’s very hard for China to meet all Trump’s requests,” said Pang Zhongying, an international relations expert at the Ocean University of China. “I have very few reasons to be optimistic.”

Beijing’s continued concerns about slowing economic growth were signalled late on Tuesday when a spokesman for China’s top planning agency said the government would look to boost sales of  automobiles and home appliances, sending shares in manufacturers sharply higher on Wednesday.

Additional reporting by Xinning Liu in Beijing

Letter in response to this article:

IP for access to China’s market is a quid pro quo / From Lex Rieffel, Washington, DC, US

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Publication: FT.com
Organization: U.S. Trade Representative, Goldman Sachs Group, Topix, UBS AG, Reuters AG, Chinese Academy of Social Sciences
Location: Washington D.C., Beijing, Hong Kong, Shanghai, Japan, Asia-Pacific, China, US
People: Arend Kapteyn, Robert Lighthizer, Xi Jinping, Donald Trump, Tom Hancock, James Politi
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