Explainer: U.S.-China trade talks – where they are and what’s at stake

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Explainer: U.S.-China trade talks - where they are and what's at stake


(Reuters) – U.S. President Donald Trump and Chinese President Xi Jinping agreed this week to meet at the G20 summit in Japan in late June to discuss how to end a nearly year-long trade war.

FILE PHOTO: U.S. President Donald Trump and China’s President Xi Jinping shake hands after making joint statements at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj/File Photo

Trade talks between the United States and China broke down in early May when Trump accused Beijing of making a U-turn on commitments to change its laws to enact sweeping economic and trade reforms.

Here is a look at the state of talks, the key issues and their implications:

WHAT ARE POSSIBLE OUTCOMES OF THE G20 MEETING?

It is unclear if the two presidents outlined objectives for their meeting in Japan when they spoke by telephone on Tuesday and agreed to restart trade negotiations.

After over a month with no contact, trade negotiators are unlikely to make much headway on a deal before the G20 on June 28-29.

Trump has previously said he would trigger the next round of tariffs on $300 billion of Chinese goods if the meeting with Xi yields insufficient progress. The move would subject virtually all trade between the world’s two largest economies to punitive tariffs.

One possible outcome would be for Xi and Trump to delay further escalation of the dispute while talks continue at the negotiator level. That would be a repeat of what was agreed when the two presidents last met at the G20 in Buenos Aires in 2018.

U.S. officials have repeatedly said they want to avoid drawn out negotiations with China, however.

THE STATE OF TALKS

Neither side has signaled it would shift from positions that led to the impasse last month, when Beijing revised a draft of the trade deal, removing references to changes in Chinese law.

U.S. Trade Representative Robert Lighthizer said the changes substantially weakened the deal. Lighthizer, the top U.S. trade negotiator and a lawyer, has repeatedly called for a strong, enforceable deal.

U.S. officials have said that the resumption of talks would depend on China returning to the original text.

Lighthizer told a congressional hearing on Wednesday that China also backtracked on commitments on digital trade issues, including U.S. access to cloud computing services in China.

China has downplayed its changes, and also said U.S. demands violate its sovereignty. It said any deal should not be one-sided, with Beijing making all the concessions.

WHAT CONCESSIONS HAD BEEN AGREED AND WHAT WERE THE STICKING POINTS?Before the talks broke down, U.S. officials had said the two sides made progress on intellectual property protection and that China made proposals on a range of issues that went further than Beijing had gone before.

For example, China for the first time discussed forced technology transfer as a widespread problem. China had previously refused to acknowledge that such coercion had existed to the extent alleged by the United States. U.S. companies complain they are pressured to hand over their competitive secrets as a condition to doing business in China.

U.S. officials also said they had made progress on cyber theft, services, currency, agriculture and non-tariff barriers to trade.

China had offered to bring subsidies in line with World Trade Organization guidelines but had not detailed how it would do that.

For its part, the United States had watered down demands China end industrial subsidies, which would require a change in China’s state-driven economic model.

China also offered to make purchases of over $1 trillion worth of goods over the next six years, including agricultural and energy products as well as industrial goods. China has said that there is still disagreement between the two sides on the actual purchases.

One of the key sticking points until talks broke down was the timeline for removal of the 25% tariffs on $250 billion worth of imported goods from China that the Trump administration has already imposed. The United States wanted to keep some tariffs in place to ensure that China met the terms of the deal, but China demanded all tariffs be lifted immediately.

Another contentious issue was the plan for a regular review of China’s compliance, a mechanism that would maintain the perpetual threat of U.S. tariffs.

THE STAKES

One of the biggest U.S. concerns is who will dominate future high-technology industries, according to the USTR. China is determined to upgrade its industrial base in 10 strategic sectors by 2025, including aerospace, robotics, semiconductors, artificial intelligence and new-energy vehicles.

Washington’s demands for change follow years of steadily rising U.S. trade deficits with China and U.S. complaints that Beijing has systematically obtained American IP and trade secrets through coercion and outright theft.

The USTR says China’s subsidies to state enterprises, including at the provincial and local government levels, have also led to an unsustainable build up in industrial capacity in China – such as in steel – that has depressed global prices and hurt producers in the U.S. and elsewhere.

U.S. officials argue that China’s massive support for state-owned enterprises makes it hard for U.S. companies to compete on a market-driven basis.

They say they do not have a problem with China moving up the technology ladder, but they do not want it to happen with stolen or unfairly obtained American know-how or in a market in which Chinese firms have an unfair advantage.

HOW DOES BEIJING VIEW THESE COMPLAINTS?

Chinese officials generally view the U.S. actions as a broad effort to thwart the Asian country’s rise in the global economy. They previously denied China required or coerced technology transfers, saying that any such actions are commercial transactions between American and Chinese firms.

China has pledged to buy more U.S. goods in the future to reduce the trade imbalance between the world’s two largest economies, and has taken some steps to open up more markets to foreign competition.

WHAT ACTIONS HAS THE UNITED STATES TAKEN?

In addition to the tariffs on $250 billion worth of imported goods from China, Trump is preparing to extend tariffs to the remaining $300 billion of Chinese imports, and will be in a position to make a decision on implementing them after July 2, when a public comment period closes.

Trump has also blacklisted China’s Huawei Technologies Co Ltd, citing national security concerns. This effectively banned U.S. companies from doing business with Huawei, and many non U.S.-based global technology firms have since cut ties with the company, the world’s largest telecommunications equipment maker. The United States is lobbying other countries to reduce dealings with Huawei and threatened to blacklist other Chinese firms.

HOW HAS CHINA RETALIATED?

China has imposed tariffs of 25 percent on $110 billion worth of U.S. goods, including soybeans, beef, pork, seafood, whiskey, ethanol and motor vehicles.

China has said it would draft its own list of foreign companies that it deems had harmed Chinese companies. That could serve as the basis for retaliation against U.S. companies for action against Huawei.

China has also indicated it may strike back through limiting rare earth supplies to the United States. Rare earth are minerals important to manufacturers of high-tech consumer goods and China is the dominant supplier.

Writing by Simon Webb; Editing by David Lawder and Sonya Hepinstall



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