Talking Trade blog
US-China: Kicking the can further down the road
Published 03 December 2018
The much anticipated G20 meeting between US President Trump and Chinese President Xi finished without a total disaster. Both sides finished dinner, in fact, with a rudimentary agreement in place and managed to emerge with smiles all around.
But does the “deal” signify anything of substance? In short, the signs are not great.
Bets could easily be taken now on whether or not we will return to the exact same spot at the end of February.
The early signs are not good. While people leaving the table in Argentina managed to argue that they achieved win-win outcomes, immediately afterwards both sides seem to have different interpretations of what, exactly, was agreed.
The Americans have stressed a 90-day timeline for resolution of significant issues in the relationship. In that timeframe, the US will refrain from increasing tariffs on $200 billion in goods from 10% to 25% on January 1 as promised earlier. In exchange, the Chinese will make substantial purchases of agriculture, energy and other industrial goods.
The Chinese, by contrast, have made no mention at all of the timelines for discussion. The tariff discussion inside China suggests that all tariffs will be eliminated during dialogue. And no commitments have been made for what, exactly, is to be bought or in what quantities or how quickly.
[This may, or may not be, the time to point out the irony of the US insisting that the Chinese behave more like a “market economy” while simultaneously demanding that the Chinese government dictate purchases from the “market.” Internal consistency is often a challenge for every government.]
It almost looks like Trump and Xi attended two different dinners, but perhaps an official document will come out shortly to help clarify matters a bit.
Having spent the last week in Washington DC, it seems clear that if trade talks are actually to start, little early work has been done. Normally, the US would have at least 60-70 people ready to go already divided into different work groups. These teams are not ready now.
This may not be so problematic, as many working level officials have extensive experience and can get up to speed quickly. However, getting complex bureaucracies to move fast can be more complicated than expected.
So far, US policy has been set at the highest levels and held by a very, very small number of individuals. The experts in different agencies have been largely sidelined. If negotiations with China are meant to be serious, this will need to change as a handful of people cannot effectively manage such complex talks on top of all other issues.
Getting an outcome with China that works with such short timelines will be tough. If the US is, in fact, only willing to grant 90 days for concrete outcomes, this will be hard. Purchasing more American soybeans might be easy. Getting to the heart of the US Section 301 complaints is much tougher.
The Americans gave China a list of nearly 150 specific items earlier this year that were meant to be addressed. This list was described to us by several in DC that had seen the list as the “take this gun and shoot yourself” document.
It contained a laundry list of issues from the most narrow and specific to a radical restructuring of the Chinese economy to match the United States. The agenda is so comprehensive that everyone in Washington can find many things to like about the list—from a handful of items to the entire set.
It is also clear that there is broad consensus in Washington that a much more aggressive approach is needed towards China. This is reinforced by the results of the US midterm elections that will bring into Congress a range of members that support a harder line—both from Democrats and Republicans.
Most individuals we met in DC argued that, at a minimum, China would need to deliver concrete outcomes. Not promises to do something, but actually doing the thing. For example, not promising to change joint venture rules for a specific industry, but actually changing the rules. Or actually cracking down harder on intellectual property infringement in a meaningful way.
Such policy changes might be possible in a 90 day window—or put such items into action on such a timeline.
Even these actions, however, may be viewed as insufficient to address most of the issues that USTR Robert Lighthizer finds most objectionable as part of the original Section 301 complaint against China. It was the Section 301 case that led to the imposition of tariffs against China in the first place.
Quite clearly, no one can expect that such deep-seated issues can be resolved in 3 months. The best that can be accomplished is the start of discussions and some “down payments” that indicate movement in the right direction.
Lighthizer and other China hawks in the Trump administration believe that US policies thus far have changed the negotiating dynamics in ways that will make it more possible to get solutions to long standing problems than in the past.
The imposition of tariffs and other actions have created leverage that the Americans did not have before. What still seems unclear is the pathway to get from here to there. Despite a possibly promising start in Argentina, clear “off ramps” to the trade dispute still seem to be lacking.
Thus it is at least an even bet that both sides will find themselves right back around a dinner table in March having the same conversation once again.
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