Broad, unresolved issues complicate US-Sino trade talks

Broad, unresolved issues complicate US-Sino trade talks
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Decades ago, America’s great poet Robert Frost wrote a poem that concluded with a powerful passage: “ … miles to go before I sleep, and miles to go before I sleep.” That came to mind as I reflected on developments in Washington last week regarding Sino-U.S. trade.

At long last, negotiators made some progress (though we really don’t know how much) in reducing tensions and diffusing or resolving a few issues. Kudos to U.S. Trade Representative Robert LighthizerRobert (Bob) Emmet LighthizerGOP senator warns quick vote on new NAFTA would be 'huge mistake' Pelosi casts doubt on USMCA deal in 2019 Pelosi sounds hopeful on new NAFTA deal despite tensions with White House MORE and China’s Vice Premier Liu He. It could not have been easy. 

Yet, both countries still have many miles to go in addressing, managing or resolving a wide range of complicated, unresolved issues.

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A first consideration is whether the agreement in principle will hold up. Another is whether it is only a temporary (although certainly welcome) “ceasefire” or the beginning of a series of measures to constructively resolve structural differences. Judging by recent history, short-term positivity must be tempered by longer-term concerns about just how significant this will be as a genuine step forward.

Recognizing the paucity of details, the outcome of these talks is good news: additional (though we have no numbers) Chinese agricultural purchases from the U.S. and a freeze on the October U.S. tariff increase, as well as indications of possible progress on protection of intellectual property and currency matters. How significant, how enduring, and whether this foreshadows further progress, all are unknowable at the moment.

First, the details must be worked out in a written agreement. As a former trade negotiator, I have seen numerous agreements “in principle” falter when details are negotiated in an actual text, or if differences arise over implementation and verification. This has derailed past agreements.

China Daily expressed doubts when it wrote that, “based on its past practices, there is always the possibility that Washington may decide to cancel the deal if it thinks that doing so will better serve its interests.” But, on a more positive note, the editor of Global Times tweeted that the talks “made breakthrough last week and the two sides have the strong will to reach a final deal,” although he stopped short of saying there is actually “a deal,” as has the spokesperson for China’s Ministry of Commerce.

Chinese leaders will want to closely review any written agreement before Presidents Trump and Xi Jinping sign it, as now planned, in Chile in November. They could ask for changes, as could American leaders; key members of Congress will have a voice, if not a vote.

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Second, this apparently constitutes only a temporary halt in escalating tariffs, limited to President TrumpDonald John TrumpTrump administration eyes proposal to block jet engine sales to China: report Trump takes track to open Daytona 500 Brazile 'extremely dismayed' by Bloomberg record MORE’s commitment not to impose the 5 percent increase on Oct. 15. The U.S. has said nothing about backing off its earlier threat to impose far higher tariffs on Chinese goods set for Dec. 15. Washington could hold this threat over China in negotiations over the details, and that could cause Beijing to dig in its heels. 

Third, as I have noted before, China and the U.S. are not simply engaged in a trade war. Differences exist over a wide range of issues related to protection of trade secrets and intellectual property, conditions for joint ventures, mutual investment restrictions, blocking sales to designated “entities,” threats of stock exchange delistings, various technology sales blacklists, currency matters, and more. A wide range of measures are available to both countries to act or retaliate against one another in such areas; most of these go well beyond tariffs. Only two of these areas — currency policy and intellectual property — appear to have been covered by this agreement, and no information was released on what was decided.

So, the announcement of this tentative, still murky agreement hardly eliminates the range of uncertainties about future tariff escalation and the many underlying structural differences between Beijing and Washington. In itself, the agreement will not reduce many of the basic uncertainties that have produced a high level of business caution (and, in some instances, virtual paralysis) about future trade ties, supply relationships and investments. What boosted the stock market in this agreement is not likely to boost actual business or investment in most sectors. 

Then there is the question of the nature of negotiations on the many unresolved issues. That process may last for years, if not decades. President Trump indicated this is Phase One and there will be two or three more phases. This recognizes the hard reality that a big, broad deal in one set of negotiations never was possible. There are likely to be a lot more phases if the goal is to cover all the issues — and even then, full agreement on all is very unlikely if not impossible. 

The best we can hope for in the foreseeable future is agreement in a few key areas and the establishment of a framework for managing unresolved differences to minimize confrontation.

Both sides have an interest in avoiding the on-again, off-again pattern of negotiations that create market volatility and dismay among businesses seeking to make investment and marketing decisions. Instead, a regular schedule of ministerial meetings is required, with mutually agreed-upon agendas and a freeze on public threats while this proceeds.

More broadly, the two sides need to reach agreement on the future architecture of their economic relationship. If top officials in Washington see the end game as a “decoupling” or suppressing China’s economic and technological rise — as opposed to achieving such important objectives as producing a level playing field and fair rules for mutually beneficial trade and investment — future talks are unlikely to succeed. And to the extent China’s leaders see the former aims as America’s ultimate objectives, they are unlikely to authorize their negotiators to make significant new compromises on key issues, especially where there are differences of opinion within the party leadership. 

China’s officials, though, also will need to recognize that some changes U.S. negotiators now seek are not confined just to this administration; whatever party controls the White House and Congress in the future likely will seek at least some of the same outcomes. 

Assuming the current agreement can be translated into a formal deal, signed and implemented by both leaders, this should be taken as a confidence-builder for new rounds of talks. Both sides apparently plan to start very soon. That is imperative to keep the momentum going. But without broad common goals, that process could falter. 

So, when the leaders do meet they need to agree on a few common aims and principles: 

  • Disengagement and decoupling are not viable options and will harm growth on both sides of the Pacific;

  • A rules-based world trading order serves common and global interests; 
  • Genuine differences must be addressed directly, rather than postponed, or they will deepen mistrust and friction;

  • Trade and other economic/investment/technology-related issues that are not quickly resolved at least must be well managed;  
  • Future economic relations cannot be seen as a negative-sum game; and
  • Intensified economic competition for markets in the future is inevitable, but it is in the interest of both nations that it takes place within a framework of agreed-upon rules and norms. 

Negotiators for the U.S. and China apparently have made some progress, but it will take a lot more work to reverse the deterioration in trust and in overall economic relations, and produce a constructive, mutually beneficial and sustainable economic relationship. 

There are “miles to go” before we can all sleep — or, at least, sleep well — confident that our mutual economic relations and futures are on the right track. 

Robert D. Hormats, vice chairman of Kissinger Associates, was undersecretary of State for Economic Growth, Energy and the Environment, 2009-13; assistant secretary of State, 1981-82; and a former ambassador and deputy U.S. trade representative, 1979-81. As senior economics adviser to three White House national security advisers from 1969 to 1977, he helped to oversee the U.S. opening to China. He is a former vice chairman of Goldman Sachs (International). Follow him on Twitter @BobHormats.