China has an Edge in Negotiations with Trump Administration

by James DiGeorgia | 02/22/2019 4:13 PM
China has an Edge in Negotiations with Trump Administration

The Chinese are playing for an extension and trying to wear down Trump’s patience to get the best deal they can. They know every day U.S. farmers and businesses are weighed down and suffer from President Trump’s tariffs, putting the United States in a weaker negotiating position


By James DiGeorgia

Chinese equities are starting to turn bullish on the likelihood of both President Trump extending a March 1, 2019 deadline to reach a trade deal with the United States. The pledge to buy an additional $30 billion of agriculture products a year from the United States is going to make it very hard for President Trump not to do a deal with China. He desperately needs a win with the nightmarish scandals plaguing his administration.

The big sticking points for a trade deal at this point is trying to secure firm commitments from Beijing to:

·         prevent currency manipulation

·        ending the Chinese requirement of forcing  U.S. companies to hand over valuable technology

·        reduce heavy subsidies to state-owned enterprises to increase competition

·        allowing their Chinese partners doing business in China to use improperly or illegally acquired intellectual property  

Protecting technology patents and intellectual property requires a reliable and quick enforcement protocol that the United States and China can agree on. American officials point to past agreements China has made in the past to protect technology and intellectual property rights that eventually China reneged or looked the other way.

Despite all the positive reports regarding negotiations in the last few days the Chinese have made only vague commitments on the structural issues of protecting intellectual property and paring back heavy subsidies to state-owned enterprises.

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According to William Reinsch, a former United States trade official and now a senior adviser at the Center for Strategic and International Studies

“The Chinese have not yet put forward anything close to what we’re asking on the so-called structural issues. There are differences of opinion on whether they will.”

Complicating matters is Mr. Trump eagerness to get a deal with the Chinese. His possible extension of March 1, 2019, is taking some of the pressure off the Chinese to cut a deal the best possible deal with the Trump Administration. The Chinese recognize the morass of scandals and problems Trump is facing as the 2020 election approaches.

Robert Lighthizer, the United States trade representative, Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, economic advisers Larry Kudlow and Peter Navarro, began meetings with China’s Liu He, the vice premier, and a team of Chinese negotiators in the executive office building next to the White House. The meeting kicked off two days of scheduled top-level talks that the Trump Administration hopes to secure enforceable changes from Beijing that will change its economic structure.

President Trump will work with Mr. Liu, in the Oval Office this afternoon, the second meeting between the two in the last two weeks.

The Chinese are patient and skilled negotiators and are taking advantage in the negotiations, by moving carefully and slowly. They’re no doubted aware of  President Trump’s frustration with the pace of the negotiations, the back-room arguments among his economic advisers and the bombardment of calls from wealthy Republican donors, red state farmer groups to end the trade war with China. Trump has proven his impatience can result in his taking over from his advisors and arriving at an expedited deal that may not be in the U.S. best interest.

According to sources familiar with the negotiations between the negotiators of the two largest economies in the world the Trump administration is proposing a process that would allow tariffs to kick back in if the Chinese renege on any or all of the commitments it ultimately agrees to as the enforcement mechanism.

Seeing Trump’s impatience the Chinese have struck a more stern tone in recent weeks during the negotiations pushing back more aggressively against the administration’s accusations that China has engaged in a pattern of illegally obtaining American technology.

Trump’s negotiating team recognizes that all China has done so far is repackage promised reforms, as concessions to President Trump realizing that as the clock ticks their advantage in the negotiations increases. The Trump administration’s China hard-liners, including Mr. Navarro and Mr. Lighthizer, are incredibly frustrated because they know China could get away without making any new, substantive commitments beyond buying $30 billion in additional U.S. products.

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Pillsbury, a Hudson Institute scholar who advises the Trump administration and speaks regularly with Chinese officials, confirms the Chinese negotiating strategy

 “The Chinese are playing for an extension. That’s one of their top goals right now.”

Mr. Pillsbury believes that Mr. Trump’s hints about extending the deadline; will motivate the  Chinese to follow through on his instinct and raise tariffs on $200 billion worth of Chinese goods on March 2 to 25%. China has a prepared a package of structural concessions to offer the United States to give Trump the ability to put a fig leaf on the proposal and accept it to settle the trade war. This would provide Trump the theater of standing up to the Chinese and then quickly be able to announce a deal.

China can sweeten its offer of buying $30 billion more of U.S. agriculture products with a pledge to buy $200 billion of American semiconductors over the next six years, and billions in natural gas exports. Those purchases by China would help to reduce the $382 billion trade deficit in goods that the United States ran up with China last year, dramatically. Reducing the trade deficit between China and the United States has been a key goal of President Trump, who has repeatedly pointed to the trade deficit as evidence of the failed economic relationship between the two nations. 

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