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U.S., China Reach No Agreement on Trade Demands

Tuesday, May 08, 2018
Sandler, Travis & Rosenberg Trade Report

A two-day visit to Beijing by a number of senior Trump administration officials saw the U.S. and China both largely reject each other’s demands on resolving bilateral trade irritants. The two sides agreed to continue discussions but did not specify when they might resume.

A statement from the White House said the U.S. delegation – which included Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross, and U.S. Trade Representative Robert Lighthizer, among others – held “frank discussions” with Chinese officials. A “draft framework” the U.S. released ahead of the meeting, which a New York Times article quoted a well-known economics professor as saying “reads like the terms for a surrender rather than a basis for negotiation,” indicates that U.S. demands included the following.

- reduce China’s trade surplus with the U.S. by $200 billion by the end of 2020, mostly by increasing purchases of U.S. goods

- immediately cease market-distorting subsidies and other types of government support that can contribute to the creation or maintenance of excess capacities in the industries targeted by the “Made in China 2025” industrial plan

- eliminate specified policies and practices with respect to technology transfer by Jan. 1, 2019

- take immediate steps to ensure a halt to cyber-enabled theft targeting intellectual property and trade secrets

- terminate World Trade Organization cases against U.S. tariffs on Chinese goods and the U.S designation of China as a non-market economy for trade remedy purposes

- commit not to take retaliatory actions of any kind (e.g., tariffs, sanitary and phytosanitary measures, technical barriers to trade, antidumping or countervailing duties, or discriminatory inspection, quarantine, or testing practices) against U.S. restrictions on investments or imports

- abide by U.S. export control laws

- issue by July 1 an improved negative list for foreign investment (i.e., investment is allowed in all sectors but those named)

- by July 1, 2020, reduce tariffs on all products in non-critical sectors to levels no higher than those of the U.S., while recognizing that the U.S. may impose tariffs on products in critical sectors, including those in the “Made in China 2025” plan

- improve market access for U.S. services and agricultural products

The draft states that if China failed to uphold any of the commitments specified the U.S. would likely respond by imposing tariffs on imports from China and, when appropriate, confiscating counterfeit or pirated goods.

According to press reports, China responded with its own set of demands of the U.S., including ending the Section 301 investigation of IPR abuses and terminating plans to impose additional 25 percent tariffs on up to $150 billion worth of Chinese exports to the U.S. Beijing also reportedly reiterated longstanding demands for the U.S. to ease restrictions on exports of high-tech dual-use goods to China and treat Chinese companies equally in national security reviews of foreign investments.

A White House statement asserted that there is consensus within the Trump administration that “immediate attention is needed” to bring changes to the U.S.-China trade and investment relationship, but according to press reports there are significant differences within the administration on what those changes should be. A Politico article noted that China may seek to capitalize on those divisions and “play a long game with the U.S., in hopes that doing so will allow it to gain better concessions on tariffs and trade policies down the line.” In the meantime, the Associated Press reports, the official People’s Daily said China “will never trade away its core interests and rejects the U.S.’s demand for an exorbitant price.”

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