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Keep a Cool Head as China-US Trade Talks Continue

May 23, 2019
  • Wu Zhenglong

    Senior Research Fellow, China Foundation for International Studies

The 11th round of China-US trade talks — officially termed “High-Level Economic and Trade Consultations” — ended in Washington, DC. While no breakthroughs were made, the two sides clarified their positions on many issues, discussed the next consultation, and agreed to meet again in Beijing. After the talks ended, Liu He — a member of the Politburo of the Chinese Communist Party’s Central Committee, the vice premier of the State Council and the leader of the Chinese team for the China-U.S. Comprehensive Economic Dialogue—revealed in an interview with Chinese media the progress made and remaining differences, as well as the prospects for further talks.

China-U.S. trade talks have achieved some important results. The two sides have made substantial progress in strengthening the protection of intellectual property, expanding market access, and balancing bilateral trade. However, three core issues continue to plague the talks: namely, whether the U.S. side will remove all tariffs; make realistic trade procurement figures; and rebalance the agreement’s wording.

Regarding the first question, this should not be a problem. Tariffs are the original reason why a trade dispute arose between the two sides, and the purpose of the talks is to solve this underlying problem. A final agreement that keeps the tariffs in place would be meaningless, and such an agreement would only serve to fully expose the bullying attitude of the American side.

As for the second question, during the round of trade talks held in Argentina, a consensus was reached on the bilateral trade balance. But now it seems that the US side is demanding more. How can China accept this kind of change made after the fact?

Regarding the third question, the US version of the proposed agreement’s text contains bias. The wording of the text is neither in line with Chinese customs nor is it based on equality — altogether it is disrespectful to China’s dignity, which is unacceptable to Beijing.

The above three issues pertain to China’s interests and national dignity — on these major matters, China will never give in. This is China’s bottom line.

Before this latest round of consultations began, the US side announced on May10th that it would raise tariffs on $200 billion worth of Chinese imports from 10% to 25%. Despite this, the Chinese team remained focused on the big picture, and still travelled to the US for the negotiation, demonstrating the utmost sincerity in resolving differences. However, some American policymakers have underestimated the determination and will of China to defend its rights and interests, have obscured the facts, and are asking for far too much. The Chinese side had to outright refuse and resolutely oppose these demands.

The US side also threatened to impose a 25% tariff on the remaining $325 billion worth of Chinese imports, even going as far as moving to completely block imports of Chinese products. In the face of extreme American pressure, the Chinese side did not flinch, but decided to adjust tariffs on some imported goods originating in the United States, effective June 1. This fully shows that China will never succumb to external pressure and will resolutely defend its rights and interests.

In response to the latest American tariffs and threats on Chinese exports to the United States, an industry lobbying group representing more than 150 American trade associations issued a joint statement pointing out that more tariffs will only punish US companies and consumers. Global stock markets have also been turbulent due to the US tariffs on China. American farmers are suffering the most, and this may shake the core of President Trump’s base. Various voices of international public opinion have expressed that adding tariffs will not only fail to solve the problem, but also create further negative effects on the global economy.

The large volume of trade between China and the United States and its great influence on the economies of both countries (not to mention on US presidential elections) adds up to ties that are certainly “too big to fail.” Therefore, both sides have affirmed that negotiations have not broken down, and that twists and turns, as well as small disputes are expected in breaking down the differences between the two countries. All of this indicates that dialogue is still going on and will continue. Obviously, there is room for both sides to maneuver and the door to negotiations has not been closed.

At present, China-U.S. trade talks have entered a new stage of fighting intermingled with talking. The contest between the two sides is based not only on their national strength, but also on will and patience. This is an economic and trade challenge that we have never encountered before, but it is also a hurdle that China will inevitably pass on the road to national revival. China has the confidence, determination, and ability to overcome the trade frictions provoked by the United States.

It is undeniable that these frictions will also cause harm to China. However, demand in China’s domestic market is huge, and supply-side structural reforms will improve the overall competitiveness of Chinese products and enterprises. There is still ample room to maneuver when it comes to fiscal and monetary policy—China’s economic prospects are very optimistic. If China can strengthen its confidence and stay united, it need not fear any difficulties, and will keep losses to a minimum.

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