U.S.–China Week: No new deals after 100-day econ. talks close (2017.07.24)

Welcome to Issue 107 of U.S.–China Week, sent from Shanghai, with Shenzhen and Hong Kong on the agenda for this week. Due to vacation, publication will pause for two weeks, returning August 14.

As always: Please encourage friends and colleagues to subscribe to U.S.–China Week. Here is the web version of this issue, ideal for sharing on social media, and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

TOUGH TALKS
First ‘Comprehensive Economic Dialogue’ ends in disagreement, no joint document or presser

The first meeting of the Comprehensive Economic Dialogue, a Trump-era rebrand of the economic track of the defunct Strategic and Economic Dialogue, took place over one day in Washington last week. The Chinese delegation was led by Vice Premier Wang Yang, with Vice Finance Minister Zhu Guangyao also reportedly in attendance, and the U.S. delegation included (according to AP) Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, Federal Reserve Chair Janet Yellen, U.S. Trade Representative Robert Lighthizer, and presidential son-in-law and White House adviser Jared Kushner. Mnuchin also acknowledged White House adviser Gary Cohn and Transportation Secretary Elaine Chao during his opening remarks.

WaPo reported that, in the end, planned news conferences were cancelled, providing a quiet end to any anticipation that further outcomes would emerge from the “100-day” accelerated trade negotiation plan. “The United States unsuccessfully pressed China to make a substantial commitment to cut its steel production,” WaPo reportedWSJ‘s account said the U.S. side “tried, unsuccessfully, to use the threat of new steel tariffs to force the Chinese to commit” to specific capacity cuts. It also reported that negotiators had hoped to “announce some kind of accords on Chinese regulation of data at multinational companies…easing restrictions on foreign auto makers, curbing Chinese agricultural subsidies,” as well as steel. Ross and Mnuchin’s statementfollowing the meeting indicated no such substantive outcomes, but did mention two more names of Americans present: Agriculture Secretary Sonny Perdue and Ambassador to China Terry Branstad. The only moderately concrete reported outcome was that the U.S. statement said China “acknowledged our shared objective to reduce the trade deficit,” and a Foreign Ministry spokesperson said, “The two sides also agreed to cooperate constructively on narrowing trade deficits.” The Xinhua readout of the meeting cast the talks in typically positive terms, but was vague in describing results, saying “some consensus” was reached in several economic areas.

ANALYSIS: The dominant U.S. media meme on these talks was that the “honeymoon” is over between Trump and China. It’s frankly strange to view the banalities of a rearranged dialogue structure and a few pre-baked trade announcements over the last 100 days as a honeymoon. The most honeymoon-like element of the early Trump administration’s China relationship was the misplaced strategy of asking nicely and expecting China’s government to upend years of strategic thinking to impose sufficient economic pressure on North Korea to produce a significant change there. As before, Chinese strategists are certainly unhappy with the Korean Peninsula situation, but they also view pressure that might result in regime collapse or lashing out as unwise. Perhaps Trump was on a honeymoon, with unrealistic expectations, but China was at best treading water nervously, awaiting the moment Trump would realize moderately increased pressure wouldn’t change the situation.

As for trade and economics, the outcome statements from the two governments give the impression of a Chinese bureaucracy striving for normal appearances (with a laundry list of sectors discussed and repeated acknowledgement of previous meetings) while the U.S. team saw no need to meet their counterparts halfway. For those favoring a new, tougher stance against Chinese industrial policy, the apparent stalemate out of this meeting—denying the Chinese side the appearance of agreement without substantive change—could signal the potential establishment of a new approach for negotiation. A shock to the bilateral economic diplomacy system may not be all bad. But U.S. observers should look for clarity and appropriate purpose before praising any shake-up. The S&ED was already criticized for having too many cooks in the kitchen. Bringing five cabinet members, two politically complicated White House advisers, and the Fed chair to the meeting hardly ensures clarity of purpose. And if this week’s meeting really fell on the overcapacious sword of China’s steel production, this was a misguided test issue. No amount of steel adjustment will bring jobs back to broad swathes of the United States; a hypothetical disappearing trade deficit will not modernize the U.S. education system; and beef exports negotiated in the last administration won’t help more than a few communities. In other words, even if the Trump team achieves what they say they’re after, their constituents won’t be markedly better off.

SECURITY + INVESTMENT
It’s not just government barriers stopping U.S. tech in China; CFIUS said to have recommended against nine deals this year

  • “The big internet companies just don’t have much of a hope here,” James McGregor told NYT in a story about the barriers to success, both government and market, foreign tech companies find in China. The story is valuable for highlighting that it’s not just regulatory burden and censorship getting in U.S. companies’ way, though those certainly matter. As Mark Natkin said, “It may not be so much that LinkedIn is having trouble in China because they’re a foreign company. It’s more that they’re having trouble in China because this is not the model people want to use here.”
  • U.S. regulators, meanwhile, are reportedly increasing scrutiny of Chinese investments in U.S. companies. The interagency Committee on Foreign Investment in the United States (CFIUS) has recommended blocking “at least nine acquisitions of U.S. companies by foreign [not just Chinese] buyers so far this year,” Reuters reported. Meanwhile, a Ministry of Science and Technology-linked State Council document (about which I and colleagues have forthcoming analysis) laid out goals to make China a leader in a wide variety of artificial intelligence-linked technologies over the coming years. The strategy is sure to add fuel to U.S. concerns that Chinese tech ambitions are state-backed and potentially linked to national security.

#USChinaWeek1967
‘Ex-Aide Asserts U.S. Weighed China Shift’

“CAMBRIDGE, Mass., July 17[, 1967] (AP) — A former White House aide said today that a high-level Government consensus to shift the United States attitude toward United Nations membership for Communist China was stalled by timing and Secretary of State Dean Rusk. James Thomson Jr., a professor at Harvard who was a special assistant to McGeorge Bundy when Mr. Bundy was an assistant to the President, said Mr. Rusk ‘desired to wait and see and then decided to talk to Taiwan himself, and then felt time was too short.’ Mr. Thomson said a 1965 United Nations vote on Chinese representation, which went 47 to 47 with 20 abstentions, generated Adminsitration discussions. He said the specific direction of a new China policy ‘was not altogether clear, but perhaps it was for the dual representation arrangement or some sort of successor state.’ The State Department refused to comment on Mr. Thomson’s remarks. Mr. Thomson, talking at a three-day conference on China policy, indicated that a key problem was how to broach the new policy to President Chiang Kai-shek of Nationalist China. Mr. Thomson said that, by the time Mr. Rusk talked with Taiwan officials, it was summer of 1966. By September, Red Guard violence indicated it was ‘not the time to move on with the two-China issue.'”

(Source: The New York TimesThis entry is part of an ongoing feature of U.S.–China Week that follows U.S.–China relations as they developed in another era of change and uncertainty, 50 years ago.)

ABOUT U.S.–CHINA WEEK

U.S.–China Week is a weekly news and analysis brief that covers important developments in U.S.–China relations and features especially insightful or influential new policy analysis.

Graham Webster is a senior research scholar, lecturer, and senior fellow of the Paul Tsai China Center at Yale Law School, where he specializes in U.S.–China diplomatic, security, and economic relations through research and Track II dialogues. He is also a fellow for China and East Asia with the EastWest Institute. His website is gwbstr.com.

Disclaimer: Opinions expressed here are my own (and I reserve the right to change my mind).

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