U.S.-China Talks Tagged Failure; Room Seen to Get Back on Track

By John Butcher

Steel overcapacity, the U.S. trade deficit with China, and just plain bad timing stood in the way of Beijing and Washington reaching any sort of new trade deals during recent talks between the two nations, according to Chinese and U.S. analysts and officials.

Inflexibility on both sides also marred the trade talks, they said in interviews and during events roughly a week after the U.S.-China Comprehensive Economic Dialogue, which took place July 19 in Washington.

Attention will now turn to one-year trade negotiations, a second period of intense trade talks set out by President Donald Trump and Chinese leader Xi Jinping, during their Florida meeting in March, they said.

Breakthroughs could come on high-technology export controls and infrastructure investment, according to Wang Huiyao, a counselor to the State Council, China’s top legislative body and president of Center for China and Globalization (CCG). Chinese investment could help the U.S. advance infrastructure projects, Wang said July 25 during a conference sponsored by the center, which is a think tank connected to the Chinese government, and a relaxation of export controls on high-tech goods could lead to an increase of technology exports to China.

Increased oil and gas exports to China from the U.S. are also possible, Lv Xiang, a research fellow at the Institute of World Politics at the Chinese Academy of Social Sciences, said at the CCG conference.

Failure, Not Death

An ‘early harvest’ of trade deals from the 100-day plan, a period of intense trade talks between China and the U.S. that ended July 16, raised hope that new agreements could be reached, but there was no second harvest.

Beijing tried to talk up the July 19 dialogue, with the state-run Xinhua news agency saying the summit had “positive outcomes.” But despite high expectations, no trade deals were announced.

Chinese analysts tagged the talks a failure, albeit not the death of potential trade agreements. But those analysts and U.S. industry representatives in China said there is room for the trade talks to get back on track.

The Washington dialogue was part of an ongoing process that will “hopefully produce results in the near future,” Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai, told Bloomberg BNA.

“Progress on trade talks is not linear. Nor does it occur at a steady speed,” Jarrett said. “There can be delays, and that might be what we are seeing now. Moreover, in the case of U.S.-China trade talks, progress is generally incremental in nature. Dramatic breakthroughs are rare.”

Analysts expressed hope that the U.S. and China might restart talks on a bilateral investment treaty (BIT). China should try to reopen BIT talks even if it is not on the U.S. agenda, said He Weiwen, a former counselor at the Chinese Consulate General in New York and San Francisco, at the CCG event.

A BIT “could address many outstanding market access issues and create a more level playing field for U.S. companies in China,” Jarrett said.

No Surprise

“The apparent lack of progress at the dialogue is not entirely surprising, given the scale of the trade and investment imbalances between our two countries,” Lester Ross, chairman of the Policy Committee at the American Chamber of Commerce in Beijing, told Bloomberg BNA.

The U.S.-China trade in goods deficit was probably one source of division, Cui Fan, an adviser to China’s Ministry of Commerce, said July 25 during a the CCG conference.

The U.S. has little capacity to reduce the deficit itself and is looking for Beijing to assist. But, the two sides have opposing views of the deficit: Washington sees it as a result of China’s support for state companies, while Beijing insists it is a result of market forces, Cui said.

But if addressing the trade in goods deficit remains central to U.S. trade relations with China, there will be “no results,” He said.

An increase in oil and gas exports from the U.S. to China could improve the trade deficit, according to Lv, who said there is a “large capacity” for energy consumption in China.

The dialogue’s failure was also in part due to timing, Lv said. The U.S. side was under-prepared and understaffed, he told the CCG conference. If the dialogue had come later in Trump’s presidency, perhaps the end of the year or beginning of next, there may have been more progress, Lv said.

Steel ‘Sticking Point’

And then there’s steel. One area of imbalance that proved to a be a “sticking point” was the pace at which China is reducing steel overcapacity, Jarrett told Bloomberg BNA.

The U.S. has repeatedly called on China to reduce excess capacity, which the U.S. says is driven by government subsidies, that results in dumping cheap steel in the U.S. to the detriment of the domestic industry.

China said it has taken measures to reduce steel overcapacity. Last year it pledged to cut up to 150 million tons of crude steel production by 2020. But from the U.S. perspective, Beijing has been doing too little, too slow.

Jarrett said that, according to his sources, “the U.S. wanted China to make further cuts to its steel-making capacity, and China wouldn’t agree.”

To contact the reporter on this story: John Butcher in Beijing at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

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