A list of hard-line demands that the Trump administration handed China this week could make it even more difficult to resolve a trade conflict between the world’s two largest economies.
That’s the view of trade analysts who say the U.S. insistence that Beijing shrink America’s gaping trade deficit with China by $200 billion by the end of 2020, among other demands, is more likely to raise tensions than to calm them. The thrust of the demands is that China should give up policies that favor domestic companies especially in a strategic rivalry with the U.S. over technology — policies Beijing considers core to its state-driven economic model and vital for its future growth.
An editorial on Saturday by China’s ruling Communist Party’s mouthpiece, the People’s Daily, said Beijing was willing to engage in discussions that brought benefits to both sides but would not give in to strong-arm tactics that hurt China’s interests.
“In the face of the U.S.’s fierce offensive of protectionism, China resolutely defends its national interest,” the People’s Daily said. “It will never trade away its core interests and rejects the U.S.’s demand for an exorbitant price.”
A U.S. official confirmed the authenticity of a document outlining U.S. priorities that was presented to China ahead of two days of trade talks that ended Friday. The official spoke on condition of anonymity because of the confidential nature of the talks.
In Washington on Friday, President Donald Trump said, “We have to bring fairness in trade between the U.S. and China, and we will do that.” Trump had campaigned for the presidency on a promise to reduce America’s trade deficit with China, which amounted last year to $337 billion in goods and services.
“We will be meeting tomorrow to determine the results, but it is hard for China in that they have become very spoiled with U.S. trade wins!” Trump tweeted.
The intensifying trade dispute between the United States and China has rattled financial markets for weeks. In March, the Trump administration slapped tariffs on imported steel and aluminum. China counterpunched with tariffs on a range of U.S. products, including bourbon and blue jeans.
An even higher-stakes fight looms over American allegations that China steals technology and forces U.S. companies to hand over trade secrets in exchange for access to the Chinese market. The United States is considering imposing tariffs on up to $150 billion of Chinese imports, and Beijing has countered with proposed tariffs on $50 billion in American products, including soybeans and small aircraft.
Seeking to avert a trade war, the United States this week sent a high-level delegation to Beijing, led by Treasury Secretary Steven Mnuchin. The delegation included Commerce Secretary Wilbur Ross, U.S. Trade Rep. Robert Lighthizer and Peter Navarro, a White House trade adviser and hard-line critic of Chinese policies.
After the talks ended, China’s Commerce Ministry said the two sides had agreed to establish a mechanism to try to resolve their dispute, though differences remained, Chinese state media reported. The report did not give specifics, suggesting that little progress had been achieved.
The U.S. document is described, in an introductory disclaimer, as being provided to the Chinese ahead of the visit to Beijing by the U.S. officials. It included demands that China immediately stop providing subsidies to industries listed in a key industrial plan. China must end some of its policies related to technology transfers, a key source of tension underlying the dispute, the list also says.
The U.S. wants China not to retaliate against U.S. measures currently being pursued against it. For instance, the U.S. says China should agree not to target U.S. farmers or agricultural products and “not oppose, challenge or otherwise retaliate” when the U.S. moves to restrict Chinese investment in the U.S. in sensitive sectors.
American analysts were struck by the aggressiveness of the Trump team’s demands. Eswar Prasad, a professor of trade policy at Cornell University, said the hard-nosed approach “makes it harder to envision a path toward a negotiated settlement.”
Prasad said the Chinese are open to negotiations on opening their market wider and doing a better job of protecting intellectual property. “Beijing is clearly in no mood, however, to meet the U.S. team’s expectation of capitulation in the face of threats of tariffs and other trade sanctions,” he said.
Wendy Cutler, a former U.S. trade negotiator who specialized in Asia, said it was encouraging to see the two countries talking and trading proposals. But she said the “kitchen sink” U.S. demands look unrealistic.
“If the U.S. is serious and wants all of this, it’s hard to see a constructive path forward,” said Cutler, now vice president at the Asia Society Policy Institute.
Analysts said the Chinese were likely to view the confrontational posture struck by the U.S. as unreasonable and akin to bullying, potentially making it difficult to tone down friction over such issues.
Yu Miaojie, a professor at Peking University’s National School of Development, described some of the demands as “like lions opening their mouths.”
“When it comes to negotiations, both sides can provide a list of requests and we will seek common ground while reserving our differences,” Yu said. “If one side provides a list with unreasonable requests, the Chinese government is unable to accept it.”
Still, the list was welcomed by a U.S. business group which has lobbied the Trump administration for greater clarity on what it wanted China to do. Some groups had complained the administration was sending mixed messages.
“We’ve been saying that the Trump administration needs to define success and what specific outcomes it is seeking,” said Jake Parker, vice president for China of the U.S.-China Business Council. The list submitted to China helps “lead to a solution and avoid tariffs and other sanctions,” he said.
Still, the situation is likely to escalate with both sides unwilling to back down, analysts say.
“There should now be no doubt in anyone’s mind that the Trump administration is not bluffing and that it is willing to launch a full-scale trade war if China doesn’t radically rein in its industrial policy machine and create a more level playing field,” wrote Scott Kennedy, a China expert at the Center for Strategic and International Studies in Washington, D.C.
“Given China’s ornery response, it appears Beijing is also willing to go down this path if necessary to keep its system intact regardless of the consequences,”.