China Looks to Call Bluff on Trump Trade Action

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U.S. President Donald Trump and first lady Melania arrive for the state dinner with China's President Xi Jinping and China's first lady Peng Liyuan at the Great Hall of the People in Beijing
U.S. President Donald Trump and first lady Melania arrive for the state dinner with China's President Xi Jinping and China's first lady Peng Liyuan at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Jonathan Ernst
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By Michael Martina and Kevin Yao
BEIJING (Reuters)

As influential voices within the U.S. business community warn China that U.S. President Donald Trump is serious about tough action over Beijing’s trade practices, there is little sense of a crisis in the Chinese capital, where officials think he is bluffing

In Beijing, many experts think Washington is unwilling to pay the heavy economic price needed to upset prevailing trade dynamics between the world’s two largest economies.

Hanging over trade relations are several inquiries into whether steel and aluminium imports – including those from China – are harming U.S. national security, possible tariffs on imported solar panels, as well as an investigation into potential Chinese abuse of intellectual property.

 

 

“I think this might be a threat to ask for deals from China,” said He Weiwen, a senior fellow at the Center for China and Globalization, a government-affiliated research organisation in Beijing.

Results in most, if not all, of the investigations are seen as imminent. Trump warned in an interview with Reuters on Wednesday of potentially “big damages” against China as a result of the intellectual property inquiry under Section 301 of the Trade Act of 1974.

People in the U.S. business community say this growing gulf in expectations between Washington and Beijing is fuelled in part by the dwindling frequency of talks on commercial issues.

 

The resulting vacuum could set the two governments on a collision course over trade

“Dialogue is a shadow, a shell, a trickle of what it was, particularly on the economic and commercial issues,” said one U.S. industry source who accompanied a business delegation to Beijing last week to warn senior Chinese officials that time was running out.

The bipartisan group of mostly former senior U.S. officials, including George W. Bush administration veterans Stephen Hadley and Carlos Gutierrez, met with Wang Yang, a member of China’s ruling seven-man Politburo Standing Committee, and Liu He, an economist and ally of President Xi Jinping, among other senior Chinese leaders, the person said.

They delivered a message that trade frictions “are not under control” and that there was a high likelihood of “significant actions” coming soon, according the person who was present at the meetings.

 

 

“We hear everything from: both sides will lose, to you’ll lose more,” the person said, characterizing the reception the delegation received from Chinese leaders.

 

RESILIENT TO A TRADE WAR

U.S. businesses operating in China have long chafed at government policies they see as intended to assimilate and supplant foreign technology.

At stake is who controls intellectual property, and how you protect it, said Tim Adams, former U.S. Treasury undersecretary for international affairs in the Bush administration.

“The question is, how do you use a scalpel to respond to it, and does the scalpel actually change behaviour because it’s a scalpel and not a sledgehammer,” said Adams, who now leads the Washington-based Institute of International Finance.

 

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