US, China Trade War Resume Amids Tensions

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 31-Jan-2019

Top U.S. and Chinese trade officials returned to the bargaining table, working to avoid a sharp escalation in the trade war between the world’s two largest economies.

At the head of a 30-person delegation from Beijing, Chinese Vice Premier Liu He greeted his counterpart, U.S. Trade Representative Robert Lighthizer, against the backdrop of Washington’s prosecution of Chinese telecoms giant Huawei, which has outraged Beijing and infused the negotiations with uncertainty.

The two sides have just a month remaining in a 90-day truce declared in December. Should the talks fail, U.S. import duties on US$200 billion in Chinese imports are due to more than double on March 2 — something economists say could help knock the wind out of the global economy’s sails.

The world’s two largest economies are battling for nothing less than future dominance in critical high-tech industries, according to Lighthizer, the lead U.S. negotiator.

A little over three years ago, Beijing launched a strategic plan dubbed “Made in China 2025” that aimed to make the nation the global leader in aerospace, robotics, artificial intelligence, new-generation automobiles and other areas — sectors U.S. officials say now represent the “crown jewels” of American technology and innovation.

U.S. officials claim Chinese trade practices are unfair, alleging the transfer of U.S. technology through requirements that foreign companies form joint ventures with local firms, as well as the alleged theft of American intellectual property through hacking.

To pressure Beijing, the White House has imposed tariffs on US$250 billion in Chinese imports.

Beijing hit back with duties on virtually every product it buys from the United States, about US$110 billion in goods annually.

Given the complexity of the issues, a finished agreement is unlikely to emerge from the two days of talks in Washington this week.

Read Also: We Will Not Renegotiate Brexit Deal Says EU President, Jean-Claude Juncker

But U.S. Treasury Secretary Steven Mnuchin said Tuesday he expected “significant progress,” and noted the governments had time left remaining in their truce.

Elsewhere on Wednesday, Federal Reserve Chairman Jerome Powell told reporters that drawn-out trade talks with China could hurt the U.S. economy by sapping business confidence. “Uncertainty is not the friend of business,” he said.

But a final agreement seemed even more distant after the U.S. Justice Department announced two indictments of Huawei Monday on charges of stealing trade secrets, fraud and obstruction of justice, and of a top executive accused of violating US sanctions on Iran, although U.S. officials insist the trade talks and Huawei prosecutions are not related.

“Let me be clear. Those are separate issues,” Mnuchin told Fox Business, repeating comments made Monday by Commerce Secretary Wilbur Ross.

Still, Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, said Tuesday the Huawei case could only complicate matters in the trade negotiations. “Of course the Huawei issue does make the trade negotiation much more difficult,” she told AFP. “There is no doubt about that.”

Last year, U.S. sanctions on another Chinese telecoms company, ZTE, sent waves through the trade negotiations, which produced no breakthrough. Trump later intervened to modify the penalties, allowing ZTE to avoid collapse.

Trump so far has projected optimism, believing Washington has the upper hand given China’s weakening economy. But Trump appears weakened after agreeing to end a five-week government shutdown without extracting any concessions from opposition Democratic lawmakers in a battle over funding to build a wall on the Mexican border.

“The danger here is that other countries will conclude Trump is a paper tiger,” said Edward Alden, senior fellow at the Council on Foreign Relations. “He blusters and takes very strong public positions, puts himself in situations he cannot win, and then meekly backs down and declares victory,” Alden added. “It will reinforce that argument that China’s best strategy is to wait and to stonewall and Trump will back down.”

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