US and China swap hard-line lists of demands at trade talks in Beijing

United States President Donald Trump. Photo / AP

Two days of inconclusive U.S.-China talks ended here Friday amid signs that the Trump administration is demanding dramatic concessions that challenge core elements of China's economic system and its ambitions for future development.

China said "big differences" remained as a high-level U.S. government delegation headed home, although it said consensus had been reached on some issues.

Given China's equally uncompromising stance, it was unclear where the two sides had found common ground. U.S. envoys are likely to have met stiff resistance, given their demands for fundamental revisions in how the Chinese leadership manages foreign trade and its domestic economy. The demands included a US$200 billion ($284.9b) cut in the U.S. trade deficit with China by 2020.

Chinese negotiators presented their own hard-line terms for a reshaped trade relationship, demanding the United States drop a complaint over China's licensing terms for foreign patent holders and immediately designate China a market economy, which would give it easier treatment under routine U.S. trade enforcement actions.

The dueling negotiating menus represented "maximalist" positions that may make eventual agreement more difficult, said Scott Kennedy, who directs a project on the Chinese economy at the Center for Strategic and International Studies.

"This could be remembered as the day that the U.S. and China found out it wasn't misunderstanding causing their difficulties," Kennedy said. "The trouble now may be that they understand each other all too well."

With the U.S. team, including Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer, en route to Washington, the White House released a statement calling the talks "frank."

The U.S. briefing paper, presented to Chinese officials before the talks, said that "the United States-China trade relationship is significantly unbalanced" and that "immediate" action is needed to reduce the U.S. trade deficit. The paper appeared on the social media site Weibo before being deleted by Chinese government censors.

The meetings marked an attempt by the Trump administration to leverage changes from China without sparking a potentially disastrous trade war, after threatening to impose tariffs on up to US$150b in Chinese imports.

Chinese President Xi Jinping. Photo / AP

U.S. negotiators entered the talks with a sweeping set of demands that called for China to drop its tariffs to match lower U.S. levels; eliminate limits on U.S. investment in key industries; end state-sponsored cyberattacks on U.S. targets; strengthen intellectual-property safeguards and halt subsidies for several advanced technology industries.

"Each side has staked out positions the other side will not reach," said John Frisbie, president of the U.S.-China Business Council. "The gap's pretty wide right now."

The talks ended with no details on next steps. But some analysts predicted tough bargaining in the weeks to come.

"The Trump administration is making very strong demands upfront, which is likely to offend the Chinese," said Andrew Collier, managing director of Orient Capital Research in Hong Kong. "It may take them some time to formulate an answer, as they don't react well to 'in your face' demands, particularly from the U.S."

U.S. negotiators will brief President Donald Trump upon their return. The president faces several critical decisions in coming weeks, including whether to impose threatened tariffs on Chinese goods, even as he seeks Beijing's help in resolving a showdown over the North Korean nuclear program.

Trump told reporters Friday that he expects to meet North Korean leader Kim Jong Un, a China ally, "very soon."

After years of ineffective U.S. complaints about Chinese trade practices, Trump clearly has opted for tougher action, said Claire Reade, a former U.S. negotiator. "The problem is China is not playing by the rules in a very important way," she said, "and China is way too big to just let it go."

The United States wants China to take swift action to reduce the US$375b deficit in goods trade by US$200b by the end of 2020. Washington also is seeking fundamental changes to the way China's Communist Party runs its economy, taking aim at a massive state-subsidized effort to achieve global dominance in advanced technologies, known as "Made in China 2025."

Chinese experts say Beijing is determined not to give ground over that issue. "Asking China to stop its state industrial policy is, to some degree, a violation of China's sovereignty, and it's impossible for China to accept it," said Lu Xiang, an expert in Sino-U.S. relations at the Chinese Academy of Social Sciences in Beijing.

The Xinhua News Agency reported that the two sides agreed to establish a "working mechanism" to maintain close communication on the issues discussed in the talks.

In a document supplied by the U.S. delegation to the Chinese side ahead of the talks, the United States demanded that China strengthen the protection of intellectual-property rights and take "immediate, verifiable" steps to halt some of the practices identified in U.S. allegations against the Chinese, notably commercial cyberespionage and the theft of intellectual property and trade secrets.

Jinping (left) and Trump. Photo / AP

The document also asked China to ensure that investors in China are "afforded fair, effective and nondiscriminatory market access and treatment" and that China reduce "tariffs on all products in noncritical sectors to levels that are no higher than the levels of the United States' corresponding tariffs."

Wei Jianguo, a former vice commerce minister, said it was beyond the Chinese government's reach to engineer such a rapid reduction in the deficit, since that would involve commercial decisions guided by market forces. "The U.S. side might not understand the Chinese government and think it has unlimited power to make any decision," he said. "It's not like that."

U.S. sanctions against leading Chinese telecommunications equipment manufacturer ZTE have also cast a significant shadow over the trade relationship.

Last month, the Commerce Department barred U.S. companies from exporting to ZTE for seven years, saying the company violated a previous settlement of criminal and civil charges by making shipments to Iran and North Korea.

That move was a big blow to ZTE, which has relied on U.S. chips and software to power its smartphones. But it has also reinforced China's determination to accelerate the development of its own high-tech industries and reduce its reliance on the United States.

"There's no space for negotiation on China's development," said Ruan Zongze, executive vice president at Beijing's China Institute of International Studies, a think tank affiliated with the Foreign Ministry. "China has to progress, and it's unstoppable by anyone."

China's Commerce Ministry said it made "solemn representations" to the U.S. delegation over the ZTE case during the talks.

- AP