August 24, 2018 / 6:04 AM / 4 months ago

Breakingviews - U.S.-China trade talks stumble on biggest block

Workers stack empty shipping containers for storage at Wando Welch Terminal operated by the South Carolina Ports Authority in Mount Pleasant, South Carolina, U.S. May 10, 2018. Picture taken May 10, 2018. REUTERS/Randall Hill

HONG KONG (Reuters Breakingviews) - The U.S.-China trade war is stumbling on the biggest block. Mid-level talks yielded no clear breakthroughs even as President Donald Trump’s administration prepares duties on an additional $200 billion of Chinese goods. The United States wants reforms to industrial policy that would fundamentally alter Beijing’s development model. The Chinese government would struggle to deliver, and is unlikely to try.

Few anticipated much from the negotiations this week, as senior officials were not involved. President Donald Trump himself downplayed expectations in an interview with Reuters. Long-awaited U.S. and Chinese tariffs on $16 billion worth of imports went into effect as scheduled on Thursday, and there may soon be more to come.

The key roadblock appears to be U.S. demands for structural change. According to The Wall Street Journal, Chinese officials have divided the administration’s requests into three categories: 30 to 40 percent involving more purchases of American goods, another 30 to 40 percent that require market openings, and a final 20 to 40 percent that touch on industrial policy, such as subsidies for tech firms and allowing U.S. data companies a freer hand in China. The first two categories are doable; many of the latter demands are off the table.

Beijing is unlikely to dial back its development strategy of using state resources to force the economy up the value-added chain. More ambitious American demands might even require restricting the state’s control of the banking system to channel capital to favored industries and companies. That might not be a bad thing, but it would come at bureaucrats’ expense.

Yet minor market opening concessions and more imports might not cut it with U.S. voters in the long run, even if Trump finds them acceptable. Large swathes of elected officials, the bureaucracy and business executives appear increasingly upset with Beijing’s industry policies: witness the bipartisan blowback against the administration’s deal to restore Chinese telecom equipment maker ZTE’s access to American suppliers after it was found to have violated a sanction-related settlement. The surprisingly stiff pushback, especially in Congress, suggests that frustration runs deeper than Trump. That will complicate efforts to end the dispute, especially if it involves forging a long-term deal that can survive angry lawmakers.  

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