- Associated Press - Sunday, July 28, 2019

BEIJING (AP) - Two months after U.S.-Chinese talks aimed at ending a tariff war broke down, both sides are trying to temper hopes for a breakthrough when negotiations resume Tuesday on an array of disputes that has grown to include tension over China’s tech giant Huawei.

Rhetoric has hardened despite the June agreement by Presidents Donald Trump and Xi Jinping to revive efforts to end the costly fight over China’s technology ambitions and trade surplus.

“I don’t know if they’re going to make a deal,” Trump said Friday. “Maybe they will, maybe they won’t. I don’t care.” He repeated his claim that the United States is prospering by “taking in tens of billions of dollars” from his tariff hikes on Chinese products. In reality, those are paid by U.S. companies and consumers who buy Chinese goods.

U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are due to meet Tuesday and Wednesday in Shanghai with a delegation led by China’s economy czar, Vice Premier Liu He.

Chinese leaders are resisting U.S. pressure to roll back plans for government-led development of industry leaders in robotics, artificial intelligence and other technologies. Washington complains those efforts depend on stealing or pressuring foreign companies to hand over technology. Some American officials worry the U.S. is losing its lead.



For their part, American negotiators have resisted Beijing’s demand that they remove all punitive tariffs immediately. Washington wants to keep some in place to ensure China keeps its promises.

“The same issues that caused the talks to break down are still there,” said Julian Evans-Pritchard of Capital Economics.

“Neither side seems any closer to offering major concessions,” said Evans-Pritchard. “It’s very hard to see how they can reach a deal this time if they were unable to do that in March.”

U.S. priorities include “industrial policy issues such as intellectual property rights, forced technology transfer and subsidies for (Chinese) state-owned enterprises,” said Jeff Moon, a former U.S. diplomat and trade official who specialized in China. “Enforcing any agreements is also a top priority.”

Economists are warning that with both sides still far apart, the truce is fragile.

After talks broke down in May, the Trump administration imposed curbs on U.S. technology sales to Huawei, the biggest global maker of network gear for phone companies and the No. 2 smartphone brand. U.S. officials view Huawei as a national security threat and warn that its equipment could be used for cyberespionage.

Beijing retaliated by announcing it would create its own list of “unreliable entities” subject to unspecified controls. Authorities have yet to announce which companies might be targeted.

On the eve of the talks, the Chinese government accused Washington on Monday of “arrogance and selfishness” after Trump pressed for the World Trade Organization to stop allowing Beijing and other governments to receive more lenient treatment as developing economies.

Trump told Lighthizer in a memo Friday the he wants the WTO to prevent member governments from claiming developing country status if their economies do not need beneficial treatment. Developing countries are allowed more time to open their economies and more leeway to subsidize exports.

China needs that status to “achieve real trade fairness,” said a foreign ministry spokeswoman, Hua Chunying.

The Trump administration’s remarks “have further exposed its wayward arrogance and selfishness,” Hua said.

Trump has suggested he would consider easing up on Huawei if it meant getting a better trade deal.

Trump - in his eagerness to find negotiating leverage - linked national security and trade with regard to Huawei to create a new bargaining chip,” Moon said. Members of Congress from both parties likely would object to any concessions on Huawei.

The tariff hikes are battering exporters on both sides and disrupting trade in goods from soybeans to medical devices. China’s imports of American goods fell 31.4% in June from a year ago while exports to the United States fell 7.8%.

Mnuchin is usually upbeat in public about the talks. But he tried to temper hopes when he announced plans for the Shanghai meeting, telling broadcaster CNBC that negotiators face “a lot of issues” and he expects to hold more talks, probably in Washington.

China and the United States will face tough negotiations. The gap between their current positions is very big,” said the Global Times, published by the ruling Communist Party newspaper People’s Daily.

Washington “still hopes to force Chinese concessions,” the newspaper said. It rejected “destructive surgery on China’s economic system” and called on Washington “not to deny the legitimacy of China’s demands.”

China agreed earlier to narrow its multibillion-dollar trade surplus with the United States by purchasing more American soybeans, natural gas and other exports. But it revoked that pledge after one of Trump’s tariff hikes last year.

Chinese leaders have grown more skittish, saying any agreement must be “balanced,” reflecting frustration that American officials would portray the talks as a victory for Washington, with China bearing the costs.

“If the responsibilities all come from China, it is not an agreement but a surrender,” said Tu Xinquan, director of the China Institute of International Trade and Economics.

Moon, who runs the China Moon Strategies consultancy, dismissed Beijing’s call for balance as “an excuse to object to reforming even the most protectionist aspects of China’s trade policy.”

Trump’s demands for changes in Chinese industrial policy strike at the heart of a state-led development model the ruling Communist Party sees as a path to prosperity and greater global influence.

The decision to add Huawei Technologies Ltd. to a U.S. “entity list” that limits exports threatens China’s first global tech brand.

Huawei, which reported $105 billion in sales in 2018, relies heavily on U.S. components and technology. Its founder said losing access to them could cut its projected revenue by $30 billion over the next two years.

That has fueled Communist Party suspicions Washington’s wants to “contain” China, making it harder for Xi to offer concessions, Evans-Pritchard said.

The trade fight takes place against a backdrop of tensions over China’s strategic ambitions.

Last week, Beijing accused Washington of undermining global stability after a U.S. warship sailed through the strait that separates the mainland from Taiwan, the self-ruled island Beijing claims as its territory.

China’s government made a new promise to buy American farm goods after Trump agreed ahead of his June meeting with Xi to allow some sales to Huawei.

Trump later accused Beijing of backtracking, saying on Twitter, “China is letting us down.”

Beijing tried to mollify Trump last week by announcing Chinese companies were ready to negotiate with American suppliers of agricultural products.

Asked whether U.S. curbs on Huawei must be lifted for trade talks to make progress, a government spokesman, Gao Feng, called on Washington to “stop using erroneous government measures to suppress Chinese enterprises.”

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Paul Wiseman and Zeke Miller in Washington contributed.

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