March 20, 2019

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China Offers Trump a Trade Peace Deal. It May Not Be Enough.

China Offers Trump a Trade Peace Deal. It May Not Be Enough.
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BEIJING — China is buying American soybeans again and has cut tariffs on American cars. It is offering to keep its hands off valuable corporate secrets, while also allowing foreign investors into more industries than ever before.

Beijing hopes all of that will be enough to let President Trump declare victory and end the trade war between the two largest economies. But the offer combines some real concessions, like lower tariffs, with nebulous promises, and it will be hard to ensure that China sticks to its commitments.

That could make it a tough sell in Washington. The Trump administration’s trade hawks are still pushing for a lot more, while even the doves fret that the new promises need effective enforcement to make sure that China follows through, according to people with a detailed knowledge of American policymaking.

Many American officials and businesses complain that China has long wiggled out of commitments — accusations that China denies. And the more hawkish wing of the administration contends that Beijing’s assurances have been so vague that it is hard to discern any meaningful progress, a position some analysts support.

Beijing’s effort so far adds up “to a modest adjustment of Chinese foreign economic policy,” said Scott Kennedy, a scholar at the Center for Strategic and International Studies in Washington, “but nowhere close to the great leap in liberalization that the U.S. and others are seeking.”

Midlevel trade talks this week in Beijing, which will continue into Wednesday, have been productive. But if negotiators do not come to a deal in the coming weeks, the administration is poised to raise American tariffs on $200 billion a year in Chinese-made goods on March 2, amping up the trade war at a time when China faces rapidly softening growth and the American economy is facing headwinds.

It is not clear whether the moves will fully satisfy Mr. Trump. The American stock market, one of the president’s favorite barometers, has slumped in part over trade tensions. And further market gyrations could prompt the president to declare victory, even if China does not give up too much.

On Tuesday, Mr. Trump said in a message on Twitter that the talks were “going very well,” a sign that Beijing was at least moving in what he considered the right direction.

China added a complicated new variable to the trade talks on Tuesday by inviting North Korea’s leader, Kim Jong-un, to Beijing. The invitation could increase pressure on Mr. Trump to reach a deal soon, but it might also antagonize national security hawks in his administration who worry about North Korea’s ballistic missile and nuclear weapons programs.

The White House has said China is an unfair trading partner. Its tariffs are too high, it says. It forces American companies to give up important technology to Chinese partners as a price for doing business there. It offers subsidies and cheap loans to Chinese companies that hope to compete with American companies in strategic areas like jetliners, semiconductors and electric cars.

Chinese officials dispute those claims. They say higher Chinese tariffs and strict investment limits are justified because China is still a developing country and well behind the United States in many economic respects. China’s manufacturing capabilities, they say, need upgrading for the country’s continued growth. They have consistently denied that the government allows forced technology transfers, saying some companies willingly share and make big profits in China doing so.

Still, China has begun to budge. Last month, it dropped retaliatory measures on American-made cars and resumed purchases of American soybeans. It has also reduced tariffs on more than 700 categories of goods from around the world.

Beijing has said it is considering a law that would forbid local Chinese officials to demand foreign companies transfer their technology to Chinese businesses through licensing agreements or joint ventures. It has also promised to open up more fully some sectors of the economy, such as vehicle manufacturing and brokerages, to foreign investors. The efforts, Beijing believes, will help the Chinese economy even as they placate Mr. Trump.

On cars and soybeans, American negotiators can claim some measure of victory. Soybean purchases have yet to reach earlier volumes, however, while Chinese imports of American-made cars are quite small since many are already made in China.

But China had imposed measures on soybeans and cars to retaliate against American tariffs last summer on $50 billion of Chinese goods. By dropping them, without requiring the United States to abandon theirs, China is signaling that for now it is willing to accept higher American tariffs on some of its goods, provided they are not applied more broadly.

China’s other peace offerings are more ambiguous.

Chinese lawmakers last month released a draft of a proposed law that would stop local officials from forcing foreign companies to transfer their technology as a cost of doing business. The Trump administration says that Chinese industries like cars and aviation have benefited from American technology.

The law may not change things meaningfully, said Donald Clarke, a specialist in Chinese law at George Washington University. The draft is vaguely worded, he said, and doesn’t acknowledge that the pressure American companies face to share their know-how often comes from behind-the-scenes maneuvering rather than strict government requirements.

As with many laws in China, it could also be moot if local governments decide not to enforce it or if penalties are not stiff enough.

“These forced tech transfers that people complain about don’t occur because some government department issues an order saying, ‘Transfer this tech,’” Mr. Clarke said in an email.

“It’s done through the government department getting involved behind the scenes in the negotiations, or not granting discretionary permission to do something unless some tech is transferred. It’s very hard to stop through a specific rule.”

Still, Chinese analysts say the pledges are significant. Chinese laws and regulations are often succinct — only a page or two when American laws or regulations would require dozens or even hundreds of pages. The real work lies in carrying out the regulations, and Beijing is now prepared to impose the new rules diligently, Chinese analysts say.

The issue of forced technology transfer “is a longstanding complaint by American businesses in China, and we are addressing it through legal adjustments,” said Tu Xinquan, the executive dean of the China Institute for World Trade Organization Studies at the University of International Business and Economics in Beijing. “So no matter what, there will be a positive impact to some extent, that is, in reducing America’s dissatisfaction with China.”

Chinese officials are also taking steps to strengthen intellectual property protections against counterfeiters and piracy. Chinese officials last month submitted a draft amendment to the country’s patent law that would raise the level of damages and fines for willfully infringing on patents.

One of the biggest beneficiaries might be companies in China. Big Chinese players have increasingly shed their reputation as copycats and have developed sophisticated technologies, and complain that local businesses can too easily steal their ideas.

“To be honest, in many areas, there is still insufficient motivation for innovation,” said Ma Yu, a research scholar in foreign investment research at the Chinese Academy of International Trade and Economic Cooperation. “So I don’t view these moves to be concessions or compromises, let alone harmful to us.”

The biggest sticking point in China’s package of concessions to the White House may be Made in China 2025, a government plan for developing high-tech industries. The Trump administration has repeatedly criticized the plan, saying it is evidence that China unfairly supports its own companies over foreign competitors in the Chinese market.

China has played down the catchy Made in China 2025 name. But there’s no concrete reason to believe that Chinese companies have halted or reversed their plans, or that officials are any less interested in plowing money into its state-owned enterprises. China’s Ministry of Industry and Information Technology, which played a major role in the program, said last month that it would continue to support development of new manufacturing processes, without mentioning the policy by name.

Jake Parker, vice president for China operations at the U.S.-China Business Council, an American business group, said that “it’s positive that China is taking steps proactively.”

But he also said that China had yet to completely fulfill its promises on issues ranging from opening up its market to credit-rating agencies and American banks to accepting credit card companies’ efforts since 2001 to offer full, nationwide service.

“Are more statements going to be enough to move the needle for President Trump?” Mr. Parker asked. “I think it would have to be a lot more robust than another policy. I don’t think this meets that bar.”



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