January 30, 2019 / 12:58 PM / 18 days ago

U.S., China launch high-level trade talks amid deep differences

WASHINGTON (Reuters) - The United States and China opened a pivotal round of high-level talks on Wednesday aimed at bridging deep differences over China’s intellectual property and technology transfer practices and easing a months-long tariff war.

Cabinet-level officials, led by Chinese Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer, met in the Eisenhower Executive Office Building next to the White House, with only a month left to reach a deal before a March 2 U.S. deadline to increase tariffs on Chinese goods.

But details of the closed-door talks were scant, with official statements seen as unlikely before they conclude on Thursday. A USTR spokeswoman declined comment on the discussions.

The talks began with an awkward silence on both sides of a long negotiating table during a photo opportunity, broken when Lighthizer made joking remarks about table positioning and appearing in photographs of a dinner between U.S. President Donald Trump and Chinese President Xi Jinping in December.

It was at that meeting in Buenos Aires that leaders of the world’s two largest economies called a 90-day truce to try to work out trade differences through negotiations. Wednesday’s meeting was the highest-level gathering since then.

Liu, who is Xi’s top economic adviser, is expected to meet with Trump on Thursday.

Seated next to Liu was People’s Bank of China Governor Yi Gang, a reform-minded official has advocated further opening of China’s financial services markets, with officials from the Finance and Commerce ministries also present.

Trump’s top trade, finance and economic officials flanked Lighthizer on the U.S. side, including Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and White House advisers Larry Kudlow and Peter Navarro.

The talks began two days after the United States charged Chinese telecommunications company Huawei Technologies Co Ltd and its chief financial officer, Meng Wanzhou, with conspiring to violate U.S. sanctions on Iran by doing business through a subsidiary it tried to hide.

Meng was arrested in Canada on Dec. 1 at the request of the United States, which is seeking to have her extradited. Mnuchin and Ross have insisted that there is no link between the trade talks and the Huawei case.

The talks in Washington are expected to be tense, with little indication so far that Chinese officials are willing to address core U.S. demands to fully protect American intellectual property rights and end policies that Washington has said force U.S. companies to transfer technology to Chinese firms.

U.S. Trade Representative Robert Lighthizer (2ndR) speaks across from China's Vice Premier Lie He (L) during the opening of US-China Trade Talks in the Eisenhower Executive Office Building at the White House in Washington, U.S., January 30, 2019. REUTERS/Leah Millis

The U.S. complaints, along with accusations of Chinese cyber theft of U.S. trade secrets and a systematic campaign to acquire U.S. technology firms, were used by the Trump administration to justify punitive U.S. tariffs on $250 billion worth of Chinese imports.

Trump has threatened to raise tariffs on $200 billion of goods to 25 percent from 10 percent on March 2 if an agreement cannot be reached. He has also threatened new tariffs on the remainder of Chinese goods shipped to the United States. China has retaliated with tariffs of its own, but has suspended some and is allowing some purchases of U.S. soybeans during the talks.

Chinese officials deny that their policies coerce technology transfers.

They have emphasized steps already taken, including reduced automotive tariffs and a draft foreign investment law that improves access for foreign firms and promises to outlaw “administrative means to force the transfer of technology.”

China is fast-tracking that new law, with the country’s largely rubber-stamp parliament likely to approve it in March.

A crucial component of any progress in the talks, according to top Trump administration officials, is agreement on a mechanism to verify and “enforce” China’s follow-through on any reform pledges that it makes. This could maintain the threat of U.S. tariffs on Chinese goods for the long term.

U.S. Federal Reserve Chairman Jerome Powell, asked whether anecdotal evidence of tariff effects had influenced the Fed’s decision not to hike interest rates on Wednesday, said the duties so far have not had a material effect on economic output.

“The concern, for me, is a longer drawn-out set of negotiations back and forth could result in sapping business confidence,” Powell told a news conference. “Uncertainty is not the friend of business.”

TEMPERED EXPECTATIONS

Some business executives expressed hopes for progress in the talks, including Boeing chief executive Dennis Muilenburg. Aircraft exports have thus far been spared from retaliatory Chinese tariffs.

“We do see some convergence happening, we think both countries are leaning forward and we anticipate some successful conclusions to those trade talks,” Muilenburg told CNBC.

U.S. trade representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, White House economic adviser Larry Kudlow and White House trade adviser Peter Navarro participate in a photo-op with China's Vice Premier Liu He, Chinese vice ministers and senior officials in the Diplomatic Room in the Eisenhower Executive Office Building on the White House campus in Washington, U.S., January 30, 2019. REUTERS/Leah Millis

A breakthrough deal was unlikely this week as both sides may wait to reveal their best offers, said Erin Ennis, senior vice president of the U.S.-China Business Council.

“I don’t think there’s going to be any big outcome,” Ennis said of the talks. “Hopefully they make some good progress that will set them up to be able to get to completion at the end of the 90 days.”

But the Chinese side would likely have to bring to the table a new offer that goes significantly beyond its previous offers to significantly increase purchases of U.S. goods, including soybeans, energy and manufactured goods.

Reporting by David Lawder; Additional reporting by Chris Prentice and Aye Min Thant; Editing by Alistair Bell

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