24.11.2019 Author: Vladimir Terehov

Latest Negotiations on Issues of Trade between USA and PRC

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From 10 to 11 October, the 13th round of negotiations on issues currently plaguing the bilateral trade and economic ties between the United States and China took place in Washington. The Chinese delegation was headed by Liu He, the Vice-Premier of the State Council of the People’s Republic of China and a current member of the Politburo of PRC’s Communist Party, while the US one by U.S. Secretary of the Treasury Steven Mnuchin and by U.S. Trade Representative Robert Lighthizer. At the end of the negotiations, President Donald Trump invited Liu He for a meeting.

It should be noted that the enormous US trade deficit with China has become the most pressing and acute issue plaguing their bilateral ties. Rounding off the figures, the statistics are as follows: annually, the United States sells the PRC $100 billion worth of goods and services, and purchases from it $500 billion worth.

If we are to ignore the causes of the unfortunate situation that Washington finds itself in, it is worth highlighting a key point: the current state of affairs goes against President Donald Trump’s strategy, neatly summed up by his rallying cry “America First”. And the fact that the annual U.S. international trade deficit is $800 billion (with half of it accounted for by that with China as mentioned earlier) makes Trump’s slogan look like a bad joke.

Clearly, a supporter of big business such as Donald Trump is not a fan of such humor. After a number of failed attempts to resolve the issue via the negotiations that had started in the summer of 2018, tariffs were imposed on half of Chinese imports into the United States in the autumn of the same year. An intention was also expressed to take similar measures with respect to the second half if the issue, at hand, was not resolved in the course of the negotiations within a “reasonable time-frame”.

Naturally, China retaliated in kind. As a result, in this “eye for an eye” manner, the trade war between the USA and China began, and became one of the key reasons behind the decreasing pace of economic growth (particularly, in recent months of this year) of both nations and other countries of the world. In addition, in response to the current situation, various respected institutions (as, for instance, the leadership of International Monetary Fund, IMF) issued public appeals to the parties to the conflict urging them to end it as soon as possible.

However, the initial negotiating positions of both sides are hard to reconcile. Ideally, Donald Trump needs everything here and now (and to the very maximum), and the urgency is especially acute now that the presidential race has begun.  Hence, he is only willing to conduct negotiations with respect to the second half of the Chinese imports into the United States.

On the other hand, for various reasons (including those having to do with PRC’s political standing), first and foremost, limiting the scope of the negotiations in this manner is unacceptable for China, and secondly, it is probably de facto impossible to quickly resolve the trade imbalance with the United States. After all, the deficit has built up over decades, with the USA directly contributing to it by outsourcing manufacturing abroad to countries with cheaper costs of labor.

This is one of the reasons why a number of the largest U.S. companies are unhappy about the rise in tensions between their homeland and China. The issue is particularly problematic for firms located on the Pacific coast, first and foremost, in California.

China also happens to be one of the largest markets for selling goods (including agricultural products), made in the United States. Meanwhile, PRC’s measures in response to the tariffs have had an effect on firstly the US farmers. Donald Trump is trying to stem their discontent by looking for viable alternative markets for agricultural products.

The current mood within the U.S. business circles regarding the future of the U.S. relationship with the PRC was clearly reflected in the fact that American businesses “took up the largest exhibition area” at the 2nd China International Import Expo (CIIE), which lasted a week and was held in Shanghai at the beginning of November.

The CIIE itself, which will be held annually, is one of the key events for the PRC’s leadership aimed to show the world China’s willingness to open up its economy and allow a much greater presence of foreign businesses in the nation.

During the opening speech at the start of the 2nd CIIE, the Chinese leader stressed the importance of multilateralism (not only on an economic level) behind the policy course to lower tariff barriers on foreign goods and investments entering the Chinese market. General Secretary Xi Jinping announced that, in the next fifteen years, the PRC would purchase different foreign products and services, worth $30 and $10 trillion, respectively.

These impressive figures must have “spurred on the hearts” of the 2nd CIIE participants “to beat faster”. At the very first international exhibition, there were already 172 countries and 3,600 companies in attendance. By November 2019, the number of such businesses had risen three-fold.

The presence of Boeing in the U.S. Pavilion was readily noticeable. In an interview with a local newspaper, Sherry Carbary, the Vice President for Flight Services and the President of Boeing China, said that “even though Boeing had had no sales in China for the past two years”, “the Chinese market would soon replace the US as Boeing’s largest”.

The heads of one of the leading manufacturers of electric vehicles, Tesla, share her opinion. The company’s latest Shanghai Gigafactory is now “ready for production”. It appears that Tesla is hoping to stop running at a loss and become profitable by expanding its production facilities abroad (not only in China but Germany too).

Donald Trump cannot afford to ignore such sentiments among U.S. manufacturers and farmers. It is unlikely that the American President hopes to achieve the goals to their fullest extent (i.e. everything here and now) during the negotiations, instead he is clearly keen on reaching a more or less acceptable compromise with the PRC.

It was Donald Trump who expressed optimism about the results of the 13th round of negotiations within the first three weeks after they had ended. There was talk about substantial progress made towards preparing the outcome document and the possibility of a meeting with PRC’s General Secretary Xi Jinping as soon as the end of November.

However, by the beginning of November, the level of optimism expressed in such statements noticeably decreased. During his fairly muddled speech on 13 November, Donald Trump said that although the “negotiators were “close” to a “phase one trade deal”, “he did not announce a date and a time for a signing ceremony”.

It is worth noting that in autumn of this year, Donald Trump announced a deadline (15 December) for completing negotiations on the document that would in one way or another resolve the issues plaguing bilateral trade. In the absence of such an agreement by the aforementioned date, tariffs on the second half of Chinese imports into the United States will be raised.

The author is beginning to have serious doubts about the possibility of such a deal being struck even by the end of this year. Still, in such a scenario, it is far from certain that the threats made by the American President will turn into reality.

Finally, it is not at all surprising that once the 13th round of negotiations finished, the role of politics in the process became increasingly obvious, after all only on the rarest of occasions can it be separated from that of economic factors without distorting the situation we are trying to make sense of. Naturally, Washington is fully aware that the negotiations to try and resolve differences in the trade and economic sphere involve their key geopolitical opponent.

At the end of October and the beginning of November, U.S. Secretary of State Mike Pompeo reminded his audiences about the aforementioned factor during his speeches in Washington D.C. (at the Hudson Institute) and Berlin. He had travelled to Germany in order to commemorate the 30th anniversary of an event, commonly referred to in the West as the Fall of the Berlin Wall.

On both occasions, the Secretary of State used rhetorical expressions (such as “new authoritarianism”) typically employed to describe people or nations in a negative light. And, at present, one such key opponents of Washington is China (which is being assisted by the Russian Federation). U.S. Secretary of Defense Mark Esper and U.S. Vice President Mike Pence have also talked about the position of and role of modern China in the world in a similar manner. It was the first time that the PRC was described as the main threat to NATO at such high levels.

Lastly, on 14 November, the Secretary General of NATO joined the operation casually referred to as “the hunt for the bear” (i.e. the President of the United States). And in the presence of the former, the key target of this operation talked about the need to strengthen the military alliance. Such statements are in direct contradiction to his own references to NATO made during the first presidential campaign, and to the aforementioned rallying cry regarding the U.S. future.

For now, it is difficult to say what role various political factors will have on the clearly beneficial (from a long-term strategic perspective) aim of resolving the issues plaguing trade and economic relations between the United States and China.

Out of all these factors, continuing to support (clearly such assistance should have ended a long time ago) the only remaining “dinosaur” of the Cold War appears to be the least rational.

It seems that China will probably become the latest excuse so as not to “disconnect the prehistoric animal from life support”.

Vladimir Terekhov, expert on the issues of the Asia-Pacific region, exclusively for the online magazine “New Eastern Outlook”.


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