Chinese President Xi Jinping. REUTERS
Chinese President Xi Jinping. REUTERS

The US has welcomed Chinese concessions since the two declared a trade-war truce in early December, but trade experts and people familiar with negotiations say Beijing needs to do far more to meet US demands for long-term change in how China does business.

US President Donald Trump and his Chinese counterpart, Xi Jinping, agreed on December 1 in Buenos Aires to stop escalating tit-for-tat tariffs that have disrupted the flow of hundreds of billions of dollars of goods between the world’s two biggest economies.

Since then, Beijing has resumed buying US soya beans, the single-largest agricultural export between the two countries. China has also cut tariffs on imports of cars from the US, dialled back on an industrial development plan known as “Made in China 2025”, and told its state refiners to buy more US oil.

Trump took those as signs that “China wants to make a big and very comprehensive deal”.

But they only start to bring Beijing and Washington back to their pre-trade-war status quo, experts said, and do little to resolve core US demands for structural changes in China to end policies that subsidise large state-owned enterprises and effectively force the transfer of US technology to Chinese firms.

“I think these are goodwill gestures, but they don’t go beyond offers that were on the table before Trump launched his trade war,” said Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for International Economics.

“Much more will have to be offered by China to reach an interim agreement in March 2019,” Hufbauer said, adding that structural changes would be far harder to agree on, much less achieve, by then.

Trump and Xi agreed on December 1 to launch new talks while the US delayed a planned January 1 tariff increase until March 2.

A spokesperson for US trade representative Robert Lighthizer, who is leading talks from the US side, did not respond to queries about the significance of China’s trade steps.

No schedule for face-to-face talks between US and Chinese officials has been announced since Trump and Xi met, but a person familiar with the discussions said meetings would likely take place in early January and that the two sides were in frequent contact.

US-built cars

The first signal that China had resumed purchases of US soya beans came in a Reuters interview last week with Trump, who said Beijing was buying “tremendous” amounts of soya beans.  China had stopped importing the oilseed from the US in July when the two countries unleashed new tariffs on each other’s goods.

But the initial purchases of 1.5Mt disappointed traders and were only a fraction of the 30Mt-35Mt China buys from US farmers in a typical year. 

“Remember, even with the tariffs, the expectations were still for $7bn worth of soybeans going to China. And we haven’t seen that.”

The concession that most captivated Trump was China’s suspension of a punitive 25% tariff on US-built vehicles, cutting its tariff rate back to the 15% global rate it put in place in May.

Derek Scissors, a China scholar at the American Enterprise Institute, a business-oriented think-tank in Washington, said the move was a “reasonable trade step”, but taken years too late. He added China would not likely increase imports from the US because of a slowing market and excess domestic production capacity.

“Trump is right to say it’s a positive move, but in a year he’s going to be angry because auto exports to China aren’t going to have budged,” Scissors added.

China also issued guidance to local governments dropping references to its “Made in China 2025” high-tech industrial development goals amid reports it is looking to replace the programme aimed at rivalling US dominance in industries such as aerospace, robotics, semiconductors, new energy vehicles and artificial intelligence.

US-China trade watchers expressed the most scepticism about that move, because state control of China’s economy has increased under Xi and few see China agreeing to abandon its industrial policy goals of developing national champions in future industries.

Signals of further concrete steps could come from Xi on Tuesday in a speech marking the 40th anniversary of China’s 1978 economic opening under late leader Deng Xiaoping and a major Communist Party conclave on economic policy. Some Chinese government advisers have called for accelerated reforms on the anniversary.

Scott Kennedy, director of China studies at the Centre for Strategic and Economic studies in Washington, said it is essential that Xi sends “unequivocal signals about the broad direction of greater liberalisation”.

“The next step would be to see a series of substantial reforms taken on their own, and all of that would lay the groundwork for renewed US-China negotiations early in the new year,” Kennedy added.

One of the people familiar with the talks said Lighthizer would insist on commitments and evidence that China is changing laws on competition policy, joint ventures, intellectual property rights and market access and enforcing the changes.

“It would be great if Xi Jinping, in the name of achieving competitive neutrality, pledges to take very concrete steps that would strip immunity and special treatment from state-owned enterprises in Chinese law,” the person said.

“They’ve got to go considerably past the old status quo on a lot of difficult issues to be able to claim that they’ve done something really significant.” 

Reuters