China Hardens Trade
Stance as Talks Enter New Phase
By Lingling Wei in Beijing and Bob Davis in Washington
Updated May 9, 2019
9:53 a.m. ET
Chinese negotiators
emboldened by perception U.S. was willing to compromise
The new hard line taken by China in trade talks—surprising
the White House and threatening to derail negotiations—came after Beijing
interpreted recent statements and actions by President Trump as a sign the U.S.
was ready to make concessions, said people familiar with the thinking of the
Chinese side.
High-level negotiations are scheduled to resume Thursday in
Washington, but the expectations and the stakes have changed significantly. A
week ago, the assumption was that negotiators would be closing the deal. Now,
they are trying to keep it from collapsing.
Adding to the pressure, the U.S. formally filed paperwork
Wednesday to raise tariffs on $200 billion of Chinese goods to 25% from the
current 10% at 12:01 a.m. Friday. Beijing’s Commerce Ministry responded by
threatening to take unspecified countermeasures. At a campaign rally in Florida
Wednesday night, Mr. Trump said Chinese leaders “broke the deal” in trade talks
with the U.S.
In the current negotiations, the U.S. thought China agreed
to detail the laws it would change to implement the trade deal under
negotiation. Beijing said it had no intention of doing so, triggering Mr.
Trump’s threat Sunday to escalate tariffs and bringing the dispute into the
open.
The hardened battle lines were prompted by Beijing’s
decision to take a more aggressive stance in negotiations, according to the
people following the talks. They said Beijing was emboldened by the perception
that the U.S. was ready to compromise.
In particular, these people said,
Mr. Trump’s hectoring of Federal Reserve Chairman Jerome Powell to cut interest
rates was seen in Beijing as evidence that the president thought the U.S.
economy was more fragile than he claimed.
Beijing was further encouraged by Mr. Trump’s frequent claim
of friendship with Chinese President Xi Jinping and by Mr. Trump’s praise for
Chinese Vice Premier Liu He for pledging to buy more U.S. soybeans.
An April 30 tweet, in which Mr. Trump coupled criticism of
Mr. Powell with praise of Chinese economic policy, especially caught the eye of
senior officials. “China is adding great stimulus to its economy while at the
same time keeping interest rates low,” Mr. Trump tweeted. “Our Federal Reserve
has incessantly lifted interest rates.”
“Why would you be constantly asking the Fed to lower rates
if your economy is not turning weak,” said Mei Xinyu,
an analyst at a think tank affiliated with China’s Commerce Ministry. If the
U.S.’s resolve was weakening, the thinking in Beijing went, the U.S. would be
more willing to cut a deal, even if Beijing hardened its positions.
That assessment, however, flies in the face of a strong U.S.
economy. Gross domestic product in the first quarter rebounded from the end of
2018, with growth clocking in at a seasonally adjusted annualized rate of 3.2%,
up from 2.2% the prior quarter. The jobs report for April, released on Friday,
showed the unemployment rate falling to 3.6%, the lowest in nearly 50 years.
But at the same time, China’s economy has stabilized this
year following months of weakness. Although China’s exports dropped
unexpectedly in April, its first-quarter growth came in at 6.4%, beating market
expectations. The generally improving economic picture gave Beijing more
confidence in trade talks, as did a recent conference on the country’s vast
infrastructure-spending program, called the Belt and Road Initiative, which was
attended by about 40 heads of government and state.
Chinese leaders saw the conference turnout “as China has
more leverage to improve relations with other countries and with the U.S.
business community,” said Brookings Institution China specialist Cheng Li. “It
made them play hardball.”
If China misread the signals—and vice versa—it wouldn’t be
the first time.
The history of U.S.-China trade negotiations is filled with
misunderstandings, as the two nations, with very different political systems,
struggle to figure out each other’s intentions.
When China was negotiating to join the World Trade
Organization in the late 1990s, for instance, China’s premier visited
Washington mistakenly expecting then-President Clinton to approve a deal. At
the end of negotiations in Beijing, then-U.S. Trade Representative Charlene
Barshefsky walked out on the talks, convinced that Beijing was jerking her
around, only to come back and finish the deal.
“China has often pushed back on specific commitments during
the negotiations,” said Clete Willems, who recently
left as White House trade negotiator to take a job at the law firm of Akin
Gump. “These are difficult things to undertake, but critical to a successful
outcome.”
In addition to the tariff increase slated for Friday, Mr.
Trump has also said he plans to “shortly” levy new 25% tariffs on $325 billion
of Chinese goods, a move that would widely affect consumer goods.
The aggressive U.S. response initially cast doubt on a trip
by Mr. Liu to Washington this week. Mr. Liu is now scheduled to lead talks
beginning Thursday, a day later than originally planned. He is scheduled to
have a one-on-one dinner with U.S. Trade Representative Robert Lighthizer Thursday.
Unlike prior visits, Mr. Liu wasn’t given the title of Mr. Xi’s
“special envoy,” suggesting that he doesn’t have the power to make significant
compromises. The Chinese delegation has also been slimmed down from the
100-plus team originally planned, although the entourage will also include
Commerce Vice Minister Wang Shouwen and Finance Vice
Minister Liao Min.
In another apparent sign of mixed signals, Trump
administration officials had thought they had made it clear that they were
weary of negotiations and that it was time for Beijing to make specific
commitments to change laws, including adding protections for intellectual
property and barring the forced transfer of U.S. technology.
Comments last week by Mick Mulvaney, the president’s acting
chief of staff, were supposed to drill home that notion. The talks “won’t go on
forever,” he said in Los Angeles. “At some point in any negotiation you go,
‘We’re close to getting something done so we’re going to keep going.’ On the
other hand, at some point you throw up your hands and say, ‘This is never going
anywhere.’”
But at the same conference, Treasury Secretary Steven
Mnuchin sent the opposite signal, saying the talks were “getting into the final
laps.”
As talks resume Thursday, one big question mark is whether
China will agree to U.S. demands for changes in Chinese law to implement the
trade deal. Beijing maintains this would impinge on Chinese sovereignty and
take too long to implement, but Beijing had made similar commitments in prior
trade deals, including those it signed to join the WTO in 2001.
U.S. officials say Beijing has failed to make good on those
commitments, while China has promised to further liberalize its economy.
“The U.S. is correct to seek a multiprong approach of not
relying solely on commitments but also actually changes to the laws, so as to
ensure Chinese leadership intentions are fully conveyed down to all local
levels of government,” said Harvard Law Professor Mark Wu.
Write to Lingling Wei at lingling.wei@wsj.com and Bob Davis at
bob.davis@wsj.com
Appeared in the May 9, 2019, print edition as 'Beijing Hardens Stance On Trade.'
RELATED
China Considers Next Volley in
Trade Fight
China Threatens Retaliation
Trump Issues Tariff Threat
U.S.-China Trade Deal in Sight (May
1)
Trump Gives Upbeat Assessment of
Trade Talks (Jan. 31)