Chances for U.S.-China trade breakthrough seen slim in Beijing talks

The most likely outcome for tense U.S.-China trade talks launching on Thursday is an agreement to keep talking, with U.S. President Donald Trump maintaining his threat to press ahead with punitive tariffs on Chinese goods, trade experts say.

A breakthrough deal to fundamentally change China’s economic policies is viewed as highly unlikely, though a package of short-term Chinese measures could delay a U.S. tariff decision.

The discussions, led by U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, are expected to cover a wide range of U.S. complaints about China’s trade practices, from allegations of forced technology transfers to state subsidies for technology development.

“This is going to be a series of relatively brief meetings with little pre-meeting planning on either side,” said Scott Kennedy, head of China studies at the Center for Strategic and International Studies in Washington.

“I think the goal from the American side is to get this conversation back on track from both sides talking past each other to China really understanding that the American concerns are genuine,” he added.

China’s Commerce Ministry described the meeting with Liu, President Xi Jinping’s top economic adviser, as allowing the governments to “exchange views” on issues of mutual concern about Sino-U.S. trade and business ties.

U.S. Trade Representative Robert Lighthizer and U.S. Commerce Secretary Wilbur Ross, who also are part of the U.S. delegation, on Tuesday both downplayed expectations for a major deal.

A Chinese government official warned that Beijing will not negotiate on its core interests nor accept preconditions on any issues, including its “Made in China 2025” program to upgrade its domestic manufacturing base with more advanced products.

The first round of $50 billion in threatened tariffs under USTR’s “Section 301” intellectual property probe focused heavily on technology products benefiting from the 2025 program. The U.S. tariffs could go into effect in June following the completion of a 60-day consultation period, but USTR has kept its activation plans vague.

China, which denies it coerces technology transfers, has threatened retaliation in equal measure, including tariffs on U.S. soybeans and aircraft.

“In the event of a trade war, we have a much greater ability to endure (the consequences) than the U.S.,” the Chinese official said.

GIFTS FOR TRUMP

U.S.-based trade experts said they expected Beijing to offer Trump’s team a package of policy changes that may include some previously announced moves, such as a phase-out of joint venture requirements for some sectors, autos tariff reductions and increased purchases of U.S. goods.

Trump has demanded a $100 billion annual reduction in the $375 billion U.S. goods trade deficit with China.

But the divergent U.S. trade delegation group is likely to have differing views on the merits of such an offer.

“They will bring back an offer and all give their opinions to Trump on whether to take it,” said Derek Scissors, a China trade expert at the American Enterprise Institute, a business-oriented Washington think tank. “This will be a short-term offer to reduce the trade deficit.”

Mnuchin and new White House economic adviser Larry Kudlow are seen as likely to favor a package that keeps financial markets on an even keel and doesn’t interfere with strong economic growth.

But the administration’s China hawks, Lighthizer and White House trade and manufacturing adviser Peter Navarro, are likely to favor a harder line demanding more fundamental trade changes, even if it means tariffs and short-term economic pain.

“Navarro and Lighthizer are there to ensure that there isn’t any incrementalism, that nobody gets taken in by an offer to drop a few tariffs or to open a few sectors that the Chinese were planning to open anyway,” said Claire Reade, a Washington trade lawyer and former Assistant USTR for China affairs.

The official China Daily newspaper said in a Wednesday editorial that the talks need some give-and-take.

“If the U.S. delegation comes to China believing Beijing’s resolve to open wider to the outside world is a matter of expediency under pressure from Washington, it will likely mean a lot of time is wasted setting the record straight.