By Clay Chandler
May 5, 2018

Donald Trump’s economic advisers left Beijing Friday without making visible progress in trade talks with their Chinese counterparts. There were no press conferences, no public statements, no announcement of plans for future talks. The high-profile U.S. delegation did not get an audience with Chinese president Xi Jinping. The little we know about the two days of discussions suggests that, if anything, they ended with the two sides further apart than when they began.

When the White House announced Trump was sending so many senior officials to China—the mission included Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross U.S. Trade Representative Robert Lighthizer as well as to senior economic advisers, Larry Kudlow and Peter Navarro—many analysts and investors leapt to the conclusion that the group had orders to get a deal done quickly. Instead, Trump’s team staked out a sweeping position that goes well beyond the demands the White House had floated previously.

According to numerous media reports, the Trump team insisted not only that China cut its trade surplus with the U.S. by $100 billion (which Trump had suggested before) but that it do so in 12 months—and then cut the surplus by another $100 billion in the following 12 months. The U.S. delegation also required that China halt all subsidies to advanced manufacturing industries in its Made In China 2025 program, which covers sectors including aircraft manufacturing, electric cars, robotics, computer microchips and artificial intelligence. In addition, the U.S. said China must: slash tariffs to an average of 3.5 percent, down from the current average 10 percent; take “immediate, verifiable steps” to halt cyber-spying into commercial networks in America; accept U.S. restrictions on Chinese investments in sensitive technologies; and open up its services and agricultural sectors to full American competition.

Cornell University economist Eswar Prasad was among the many analysts to conclude that this was not a position designed to get a deal. As he told The New York Times: “The list reads like the terms for a surrender rather than a basis for negotiation.” At the very least, it signals that Trump is willing to risk a protracted standoff with China on trade.

Beijing is sending signals too. Over the past week, China’s government leaders, academic experts, and state-owned media demonstrated great discipline in communicating the message that: China isn’t afraid of a trade war, won’t be bullied by Trump, will retaliate in kind, can continue to grow and develop just fine without the United States. At least some of that got through to Financial Times columnist Martin Wolf, who emerged from a Tsinghua University dialogue between foreign scholars and journalists and top Chinese officials, academics and business people convinced that China’s elites feel their nation is “under attack” by the U.S.. In an essay entitled “How the Beijing Elite Sees the World,” Wolf writes that China’s leaders find U.S. trade demands “incomprehensible,” and have high confidence that China can endure whatever Donald Trump can throw at it. Wolf concludes with the ominous observation that this will be a “testing year” for the U.S. – China relationship, and that the outcome of that test will “reshape our world.”

On that last point, at least, I agree. But it’s getting harder and harder to hope for an outcome that will reshape the world for the better.

Clay Chandler


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