By Lingling Wei, Jacob M. Schlesinger, Jeremy Page and Michael C. Bender
A month before President Donald Trump's visit to Beijing,
Chinese officials presented an offer they thought Washington
couldn't refuse.
China proposed that during the trip, Mr. Trump and his
counterpart, Xi Jinping, unveil a plan to widen foreign firms'
access to China's vast financial industry, according to people with
knowledge of the matter. It was a move previous U.S.
administrations had sought for years.
To Beijing's consternation, according to the people, Washington
wasn't interested. The offer was made a second time during one of
Mr. Trump's meetings at the Great Hall of the People. Hours after
Air Force One took off from Beijing, China announced the opening on
its own.
The cold shoulder from the White House reflects a fundamental
shift in how the U.S. manages it relationship with China, one that
suggests a bold gamble and a rocky road ahead despite the bonhomie
of the presidential summit earlier this month in Beijing.
The financial opening initially attracted wide attention from
market participants, and Beijing called it evidence of its
commitment to market liberalization. U.S. reaction has been tepid.
A White House spokeswoman on Friday called it "welcome but long
overdue" and said: "It is also only one of a plethora of problems
China needs to address in order to provide fair and reciprocal
access to its market."
The Trump administration, which recently completed a
comprehensive review of China policy, is rejecting the longstanding
practice of eking out concessions from Beijing on trade and market
access around high-level meetings.
To Mr. Trump and his aides, that approach has yielded few
substantive benefits but allowed China to continue policies that
put American businesses at a disadvantage. One White House official
refers to that pattern as Beijing's "rope-a-dope" strategy. The
administration is now investigating trade sanctions or enforcement
actions against China with the goal of fundamentally challenging
Chinese trade practices.
The White House is also trying to invest in the personal
relationship between Mr. Trump and Mr. Xi in order to absorb some
of the shock of the coming trade measures.
That helps explain Mr. Trump's unorthodox blend of tough talk on
trade and effusive praise for Mr. Xi in Beijing. In China and
around the globe, the White House is aiming to make an asset out of
Mr. Trump's unpredictability, which has been criticized by
foreign-policy experts as a destabilizing influence on
international negotiations over trade and national security.
"The U.S. now believes that only the threat of unilateral action
will compel China to change," says Scott Kennedy, a deputy director
at the Center for Strategic and International Studies, a Washington
think tank.
The new China strategy carries considerable risk. Some policy
experts fear it could set off a trade war. Others, especially
advocates of harsh sanctions, worry Mr. Trump might not follow
through if Beijing steps up its charm offensive with further
attempts to flatter him or if his agenda becomes monopolized by
domestic issues, especially the tax overhaul proposed by the
Republicans in Congress.
Still, in Beijing, the prospect of a much tougher U.S. stance is
starting to sink in. China had hoped to show it is doing its part
to improve the relationship by granting Mr. Trump a
"state-visit-plus" -- including a private dinner with Mr. Xi in the
Forbidden City -- and opening the financial sector.
"China realizes that it can't continue to drive away foreign
capital," says He Fan, a professor at Peking University HSBC School
of Business. "It likely will take more measures to open up its
economy."
Beijing is likely to point to any opening measures, however
symbolic, to argue against unilateral action by Washington.
Under the new financial opening, Beijing pledged to let foreign
securities firms own majority stakes in their Chinese ventures and
to scrap foreign ownership limits on Chinese banks. Officials
indicated the security-industry changes would be limited, at least
initially.
Western officials treat such pronouncements with skepticism,
pointing to China's poor follow-up record and saying hurdles have
grown despite similar pledges in the past.
"This opening-up comes at a late stage in development," said the
European Chamber of Commerce in a statement. "It is now difficult
for foreign firms to capitalize on these changes as domestic
Chinese firms have stronger positions in their respective
industry."
Such views are shared by U.S. officials. "The overall approach
now is not to negotiate over crumbs, not celebrate small deals that
will have limited impact," one official said.
While attending meetings by the International Monetary Fund and
the World Bank in Washington in October, China's Vice Finance
minister Zhu Guangyao told U.S. officials about the new
financial-opening plan, according to the people familiar with the
discussions. The Chinese side had expected U.S. officials would
welcome the proposal and agree to roll it out as a breakthrough
during Mr. Trump's visit to Beijing.
Instead, U.S. officials called it too little too late.
"We said, 'No, we're not going to take your gifts because you're
just trying to sucker us,'" said a U.S. official familiar with the
discussions. "The idea with China is no negotiation because it will
just make us beholden to them and reluctant to slam them on other
stuff."
The Trump administration trade team is weighing a half-dozen
trade enforcement actions that are aimed directly, or indirectly,
at China, with decisions expected by early next year.
The team is looking at invoking a Cold War-era law that was last
used in the early 1980s to block steel and aluminum imports in the
name of national security. It is also studying dusting off another
law last used in 2002 to protect domestic producers claiming to
have been damaged by a sudden surge of cheap imports; solar panels
and washing machines are goods in focus.
Shortly before Mr. Trump's trip to Beijing, his Commerce
Department issued a lengthy study justifying the continuing
branding of China as a "nonmarket economy," a status that allows
the U.S. to impose extra high duties on Chinese imports found to
have been illegally subsidized or "dumped" below production costs.
Commerce has since imposed duties of up to 162% on Chinese aluminum
foil and 194% for hardwood plywood. China has filed a complaint
over that designation to the World Trade Organization.
At the same time, Mr. Trump's trade agency is building a broad
case to charge China with "unfair trade practices" by improperly
pressuring American companies to turn over valuable intellectual
property as the price for entering the Chinese market.
Still, the question is when, or whether, the administration will
actually take action on these fronts. So far, trade enforcement has
taken a back seat to White House priorities such as winning passage
of a tax cut and securing Chinese cooperation to curb North Korea's
nuclear program.
U.S. officials have struggled to find remedies that won't
trigger a wide backlash from industries that consume Chinese
products or free-trade Republicans in Congress. Excessively harsh
sanctions could also provoke a full-blown trade war, some policy
experts say.
Although an open line to Mr. Xi could help in managing a trade
crisis and allow for more meaningful deal-making, efforts to forge
a personal rapport with previous Chinese leaders have rarely borne
fruit.
"The development of personal relations is a fact, not a
strategy," the White House spokeswoman said. Messrs. Trump and Xi
"seem to have established a good personal relationship, as the
president has with many world leaders," she added.
Already, some supporters of Mr. Trump's promised China trade
crackdown have grown frustrated at the limited results. The
Alliance for American Manufacturing, a group formed by the United
Steelworkers union and U.S. steelmakers, praised Mr. Trump in April
when he launched his study on national-security steel tariffs, and
his aides had promised action by June.
Now, they have launched a petition drive protesting the delays
and demanding the administration follow through.
The deadline "is long past -- and still no action," the petition
reads. "President Trump pledged to stand up for America's working
class -- and it's time for him to make good on his word."
Write to Lingling Wei at lingling.wei@wsj.com, Jacob M.
Schlesinger at jacob.schlesinger@wsj.com, Jeremy Page at
jeremy.page@wsj.com and Michael C. Bender at
Mike.Bender@wsj.com
(END) Dow Jones Newswires
November 19, 2017 16:17 ET (21:17 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.