Trade Talks Resume at Pivotal Moment in U.S.-China Relations

Date : 10/09/2019 @ 7:46PM
Source : Dow Jones News

Trade Talks Resume at Pivotal Moment in U.S.-China Relations

By Wiliam Mauldin 

WASHINGTON -- Senior U.S. and Chinese officials will square off for trade talks Thursday at a pivotal moment in the countries' relationship, with higher tariffs looming if negotiators fail to break a five-month stalemate.

The backdrop for the talks has become more complicated. What started as a U.S. assault on Chinese trading practices has become muddied by other issues, from China's repression of its Muslim minorities to the possible impeachment of President Trump.

"I don't have high expectations for these talks," said Sen. Marco Rubio, a Florida Republican who has urged a tough approach to Beijing. "What we're going through here is not just a trade dispute but a much-needed rebalancing in our relationship."

U.S. business leaders are worried about the long-term implications of an unending trade war. Large companies fear losing access to China, the world's largest consumer market, while small businesses in particular are chafing under 25% U.S. tariffs on many Chinese imports.

"These tariffs have been a major, major challenge for us," said Deepa Gandhi, chief operating officer of the New York-based handbag company Dagne Dover. "It would be great if we could focus on growing and building our business instead of mitigating tariffs."

Wall Street is on edge, with markets moving on news that could affect trade talks, such as the U.S. blacklisting this week of Chinese companies and entities linked to the Muslim crackdown.

There are troubling economic signs. An index of U.S. manufacturing showed the lowest reading in more than 10 years for September.

Few believe the U.S. and China will agree to a comprehensive trade accord this week. "It's unrealistic to think we're going to solve all the issues in one go -- we have too many issues," said Craig Allen, president of the U.S.-China Business Council.

Yet Mr. Allen is hopeful for a "cessation of hostilities," including halting new U.S. tariffs on Chinese goods -- which are paid by U.S. importers and consumers -- and the start of serious negotiations toward an accord.

Most Democrats back a tough approach to China, but many have criticized Mr. Trump's tactics and reliance on tariffs. Sen. Maria Cantwell (D., Wash.) said it is "clear from the latest report on U.S. manufacturing that the tariff-first approach on trade is hurting the United States."

China has been stepping up purchases of American soybeans, buying 1.5 million metric tons in the last week of September alone. Business groups hope farm purchases will give the Trump administration at least one reason to delay new tariffs.

The high-level talks are scheduled for Thursday and Friday, with Chinese Vice Premier Liu He and other senior Beijing officials squaring off against U.S. trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

Lower-level officials have been meeting this week to lay the groundwork, and the Chinese delegation is working to secure a meeting between Mr. Liu and President Trump, according to one person briefed on the situation. Opponents of tariffs hope the officials can find ways that Mr. Trump and Chinese President Xi Jinping can ratchet back tensions at an expected meeting next month at a summit of world leaders in Chile.

Last weekend, U.S.-China relations were further strained by a tweet from the general manager of the Houston Rockets basketball team supporting the Hong Kong democracy movement, leading to the cancellation of NBA events in China this week.

China is looking to narrow the scope of its negotiations with the U.S. to trade matters only and put thornier issues -- such as U.S. national security concerns over Chinese telecom giant Huawei Technologies Co. -- on a separate track in a bid to break the deadlock.

Chen Wenling, chief economist at Beijing-based think tank China Center for International Economic Exchanges, said that because the Chinese market needs agricultural products Beijing is willing to buy from the U.S., although she doesn't think purchases will return to pre-trade-war levels unless the U.S. removes all its tariffs.

She described Beijing's hope for a "phased deal" under which the two sides agree on some things in the short term.

"To achieve a phased deal, the U.S. needs at least to take away some tariffs," she said.

For its part, China is buying farm products, opening up its financial sector and cracking down on fentanyl trafficking in the hopes these actions will appease Washington, she said.

But Mr. Trump has insisted the deal must include long-term measures aimed at leveling the playing field between U.S. and Chinese companies, including limiting the forced transfer of technology and curbing subsidies by the Chinese government and advantages enjoyed by government-controlled businesses.

The president's hardball tactics, including escalating tariffs and the blacklisting of Chinese companies, have led to pressure from Republican political donors and lawmakers close to businesses and farmers who have suffered retaliation from China.

Business groups want Mr. Trump abandon plans to raise tariffs to 30%, which is set to happen Oct. 15. They also want him to drop plans to impose new tariffs of 15% on $156 billion in smartphones, apparel and other consumer goods starting Dec. 15.

Some of Mr. Trump's supporters are pushing for a resolution. Senate Majority Leader Mitch McConnell (R., Ky.) has pointedly noted how the trade war has been "very tough" on American farmers -- a key Republican constituency -- and GOP megadonor Sheldon Adelson called Mr. Trump in August to warn about the China conflict's impact on the economy and his election prospects.

Economists worry that the tariffs and uncertainty about the trade war could trigger or exacerbate an economic contraction in the U.S. as global growth slows.

"The public wants a deal," Sen. Chuck Grassley (R., Iowa), chairman of the Senate Finance Committee, said Wednesday. "Taking some of this uncertainty out is necessary to move us along on the agreement and to keep the economy strong, which is the bulwark of his re-election."

Some business groups are pushing for a partial agreement to halt tariffs, but Mr. Grassley said U.S. negotiators appear to be aiming for a grand bargain that requires structural changes to China's economy, although such a pact may fail to rein in Beijing's subsidies for Chinese companies.

"I hope we don't settle for some bad deal, some short-term thing in which we agree to some smaller items in exchange for going back to where it was," Mr. Rubio said in an interview.

Asked Monday if the administration was heading toward a partial deal with China, Mr. Trump said, "I think it's not what we prefer at all."

Previous attempts to clinch a limited deal failed after criticism from Democratic politicians as well as hawkish GOP voices in Mr. Trump's camp.

The potential impeachment of Mr. Trump has also clouded prospects for a pact, with observers saying the possible removal of Mr. Trump from office might give China an incentive to bide its time.

Mr. Trump dragged China into the impeachment debate last week by asking Beijing to investigate Democratic presidential candidate Joe Biden and his son -- an awkward request that could call into question the merits of any trade deal reached with China.

"Very few expected a comprehensive deal, but with the additional scrutiny, it would frame any sort of deal involving concessions as politically motivated," said Jason Miller, a former Trump communications aide who now advises companies.

China has presented the trade war as a long-term confrontation that must be endured, at least for now.

"The America side seems very interested in a deal, and yet is demanding a good, strong deal," said the U.S.-China Business Council's Mr. Allen. "The Chinese side seems to be strengthening their position, and they are prepared for a long-term economic disagreement with the United States."

--Chao Deng, Josh Zumbrun and Bob Davis contributed to this article.

 

(END) Dow Jones Newswires

October 09, 2019 14:31 ET (18:31 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.


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