[TheWallStreetJournal] China Seeks to Narrow Trade Talks With U.S. in Bid to Break Deadlock

Beijing is looking to put thornier national-security issues on a
separate track


By Lingling Wei and Chao Deng in Beijing and Josh Zumbrun in Washington
Updated Sept. 12, 2019 7:32 pm ET
China is looking to narrow the scope of its negotiations with the U.S.
to only trade matters, seeking to put thornier national-security issues
on a separate track in a bid to break deadlocked talks with the U.S.

Chinese officials hope such an approach would help both sides resolve
some immediate issues and offer a path out of the impasse, people
familiar with the plan said.

The move is the latest in a series of steps officials in Washington and
Beijing are taking to ease trade tensions ahead of high-level
negotiations in October.

It comes as President Trump moved on Wednesday to postpone until Oct. 15
a tariff increase on about $250 billion in imports that had been set to
hit on Oct. 1. He called the delay a goodwill gesture as China marks the
70th anniversary of Communist rule on that date.

Chinese negotiators, meanwhile, are making plans to boost purchases of
U.S. agricultural products, give U.S. companies greater access to
China's market and bolster intellectual-property protections, people
familiar with their plans said. China also made public this week a
series of exemptions to its tariffs on U.S. imports.

While business groups welcomed the efforts, many of the nations'
sharpest disagreements remain unresolved. Stocks rose on the news, but
some business leaders cautioned that both sides have appeared close to
reaching an accord in the past, only to have negotiations break down.

The two nations remain divided on how to remove tariffs that cover the
majority of trade between the two nations, China's practices with
intellectual property and investment restrictions on U.S. businesses, as
well as Beijing's extensive reliance on state-owned enterprises.

"It's a hopeful sign that they're de-escalating rather than escalating,"
said Rufus Yerxa, president of the National Foreign Trade Council.
"Given what's happened before, I'd be cautious about assuming this means
we're on a quick path to a deal."

Beijing hopes to adopt a two-track approach before the planned talks
between its trade team, led by Vice Premier Liu He, and the U.S.
delegation, led by Trade Representative Robert Lighthizer, these people
said. While Mr. Liu would continue to lead talks on trade issues, a
separate team would be assigned to manage the other geopolitical
matters, they said.

Deputy-level Chinese trade officials plan to head to Washington next
week to pave the way for the high-level meeting, another person familiar
with the matter said.

If talks progress, there is a possibility the two sides could achieve a
deal that would be far more limited than the sweeping agreement that was
pursued in May, but one that could pause or even roll back U.S. tariffs
to cover just $250 billion of Chinese imports, a person familiar with
the efforts said.

Asked about that possibility of a limited deal later Thursday, Mr. Trump
said he would consider it, but "I'd rather get the whole deal done."

U.S. business groups support any progress toward a deal, pointing to the
increasing toll tariffs will take on U.S. companies and consumers. "We
urge both sides to work toward eliminating tariffs, realize the concrete
progress that is possible today, and build momentum for longer-term
negotiations on the most challenging issues," said Craig Allen, the
president of the U.S.-China Business Council.

In Washington, Treasury Secretary Steven Mnuchin said the U.S.'s top
concerns remain intellectual-property rights and forced joint ventures,
as well as currency issues.

Unrest in Hong Kong isn't under discussion as part of the trade talks,
Mr. Mnuchin said, but he didn't address whether negotiators would
discuss Huawei Technologies Co., which the U.S. regards as a security
threat amid a global shift to next-generation wireless networks.

He also dismissed speculation that the administration would accept a
watered-down deal ahead of the 2020 presidentialelection. Mr. Trump, a
Republican, "is prepared to keep these tariffs in place," the secretary
said. "He is prepared to raise tariffs if we need to raise tariffs."

He said agricultural purchases by China would be a central piece of any
deal. Mr. Trump, in a brief morning tweet, echoed those remarks: "It is
expected that China will be buying large amounts of our agricultural
products!"

China has taken tentative steps in that direction. Ahead of October's
talks, Beijing has been looking to lighten the mood by making more
purchases of U.S. agricultural goods, which could include pork and
soybeans, to show its sincerity in meeting a demand for which Mr. Trump
has pressed hard throughout the trade dispute.

China's retaliatory steps to Mr. Trump's tariffs have hit U.S. farmers
hard, one factor that has pressured the Trump administration to find a
path forward. This pressure has been exacerbated by a disagreement
between the Trump administration and House Democrats over how to fund
the White House's farm-bailout programs.

Though Beijing suspended farm purchases in August, Chinese companies
have started to ask about prices for U.S. farm goods again, China's
Commerce Ministry said on Thursday.

Similar inquiries this summer failed to result in large-scale purchases,
among the reasons negotiators have made no progress in recent months.

Trade talks fell apart in May, when the U.S. accused Beijing of
backtracking on pledges to enact deeper changes to its economic system.
Chinese officials denied such charges and said any agreement between the
two countries has to be balanced—meaning the U.S. would have to make
compromises, too.

While formal negotiations have since resumed, there has been little
tangible progress.

Beijing's attempt to separate trade from broader concerns about
geopolitical competition will likely be a hard sell for the Trump
administration, which has linked trade negotiations with other issues,
including Huawei, which Washington has put on an export blacklist.

Huawei is a leader in 5G network equipment, which U.S. officials say
could allow it to spy on behalf of the Chinese government, allegations
Beijing rejects.

Chinese President Xi Jinping has made relief for the company a
precondition for reaching a trade agreement. Chinese officials are
hoping President Trump will keep his word on lifting a U.S. ban on
purchases of Huawei products that aren't tied to national security.

Washington and Beijing will also likely disagree on what gets
categorized as a trade issue as opposed to a national-security issue. In
earlier rounds of discussions, Chinese officials had sought to treat
data transfers and cloud computing as related to national security,
while the U.S. pushed Beijing to address those issues in the
negotiations over trade and investment.

China feels that time is on its side, believing Mr. Trump is under
pressure to strike a deal as part of his re-election bid next year. Even
so, officials in Beijing are eager to come to an agreement, however
narrow, with the U.S. to de-escalate tensions and alleviate some of the
pressures on its economy.

Mr. Liu, the Chinese vice premier, has previously said 40% of the U.S.
demands could be tackled immediately, while another 40% could be
addressed through continued negotiations, according to people tracking
the talks. The remainder would be off-limits for negotiation.

In a sign that Beijing is becoming more eager to move forward with
talks, China has played up the need for the two countries to work
together through its state media. "The tone has changed," said Huo
Jianguo, the former head of a trade-policy body under China's Commerce
Ministry. "The Chinese side is putting out a signal of urgency."

This week, Mr. Liu and Chinese Premier Li Keqiang each sent positive
signals to U.S. executives during separate meetings in Beijing with
Citigroup Inc. Chief Executive Michael Corbat and with the U.S. Chamber
of Commerce's head of international affairs, Myron Brilliant.

If the two sides aren't able to translate the bonhomie into tangible
progress, the stage is set for more tariff escalation. In addition to
the U.S. levy increases postponed until the middle of next month,
another round of U.S. tariffs is scheduled to be implemented on Dec. 15,
covering consumer goods including smartphones, toys and apparel.

— Lin Zhu in Beijing and William Mauldin and Vivian Salama in Washington
contributed to this article.


https://www.wsj.com/articles/china-seeks-to-narrow-trade-talks-with-u-s-in-bid-to-break-deadlock-11568284169