China–US trade negotiations broke down unexpectedly in May 2019. The United States government was ridiculed into launching an all-out war on private tech companies like Huawei. The economies of the two countries and the global economy are predicted to suffer greatly as a result. So, why did negotiations fail this time?
By the end of April, President Trump and the US media had impressed upon global observers that China and the United States were about to reach an agreement on trade. President Xi was invited to Washington in late May in line with this posturing.
Beijing had very few words to say about the invitation and there was no suggestion that this series of talks would end after the scheduled meeting. Beijing has hardened its negotiating position since March 2019 and is demanding that discussions take place on more equal footing. Domestic politics will play a big role in the final stages of the negotiations.
After the collapse of the 11th round of trade talks in Washington, Vice Premier Liu He emphasised that any agreement must be equal and mutually beneficial. China will not compromise on principles, he argued.
Three core concerns must be resolved if these talks are to be successful moving forward. First, tariffs imposed must be cancelled. Second, volumes of Chinese purchases must be realistic. The two sides have reached a consensus on the number of purchases made in Argentina and this number should not be changed at will. Third, the balance of the text in the proposed agreement must be improved such that it better reflects the equal footing upon which both Washington and Beijing meet on matters of trade.
In addition to these three points, China is increasingly disappointed with the lack of progress on the larger goals of these negotiations. Through the signing of the agreement and the leadership visits, strategic rivalry between the two countries should de-escalate. In fact, the opposite seems to have happened — the United States has exerted growing pressure on Beijing on almost all of the issues vital to Chinese interests. These include the South China Sea, Taiwan, Xinjiang and the exchange of students, visas and investment in the United States.
A lack of trust and demands from the United States that tariffs be maintained are two reasons that the leaders cannot reach an agreement. The United States claims that China has made many trade promises in the past but that most have not been fulfilled. The US business community opposes tariff measures but insists that the government should not be too hasty in reaching an agreement reliant only upon China’s promises.
The United States faces tremendous socialist reform pressures and demands for a more equitable distribution of wealth. These issues are destined to become major topics in the 2020 presidential election campaigns. Trump and Mitch McConnell, the Republican majority leader of the Senate, have expressed their willingness to resist ‘socialist’ reform. US elites are thought to be ‘scapegoating’ other countries in the hope of diverting pressure away from domestic issues. China, with a different set of ideological and political institutions, has become the most ‘convenient’ enemy.
The trade and security hawks now command the United States’ centre of power. The Democratic and Republican parties, driven by competition for votes, are showing that they are willing to get tough on China to gain the support of voters in swing states. The risk is high that the United States will carry forward a long-term hostile policy towards China, with the possibility of relations deteriorating into a new type of Cold War.
Trump’s personality is also a key factor influencing negotiations. He is deeply obsessed with the art of making a deal. The US political system also has much fewer constraints on presidential power than one imagines. Seeking ‘total’ victory has impacted US relations with all major trading partners. This is not limited to China.
After setbacks in negotiations, though both sides deny it, the US government escalated the tariff war into a technology war. Even if China had reached an agreement satisfying US requirements, security hawks would still ban Huawei and other Chinese tech companies in the name of national security. The public atmosphere of hatred in the United States, incited by these security hawks, has made it more difficult to reach an agreement acceptable to both countries.
It is still possible for China and the United States to reach an agreement based on common interests.
In order to win the 2020 general election, Trump needs an agreement. With a China deal, he can gain the support of the agriculture and energy sectors, Wall Street and US companies investing in China.
Beijing also hopes to reach an agreement to ensure China’s economic growth, stabilise bilateral relations and avoid the prospects of strategic competition. It is hard to imagine that China will come to the negotiating table if the United States maintains high tariffs and deepens its technology wars. Trump exaggerates the economic difficulties and underestimates the resilience of the Chinese economy.
China and the United States need to find a more balanced approach to address these concerns. Constructive communication between the leaders of the two countries will still play a vital role in breaking the stalemate.
Wang Yong is a Professor of the School of International Studies and Director of the Center for International Political Economy at Peking University, Beijing. This commentary first appeared in East Asia Forum.