Lack of Progress at U.S.-China Talks Raises Stakes for Trump -- Update

By Jacob M. Schlesinger and Ian Talley Features Dow Jones Newswires

High-level economic talks between the U.S. and China ended Wednesday without any progress, leaving the Trump administration's efforts to recast trade ties with Beijing in limbo.

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After a full day of bilateral meetings, the U.S. side issued a terse statement saying that "China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve."

The statement didn't provide further details on just how much the two sides could agree on, or when they would resume discussions. Chinese officials made no comment.

The failure to take concrete steps to close America's $347 billion trade deficit raises pressure on the Trump administration to consider shifting from its embrace of cooperation with Beijing toward more confrontation.

The meetings were held to mark the end of a 100-day period that President Donald Trump and Chinese President Xi Jinping had set to come up with a comprehensive plan to reset commercial ties between the world's two largest economies.

The U.S.'s statement, issued by Commerce Secretary Wilbur Ross and Treasury Secretary Steven Mnuchin, the co-chairs of the American delegation, added that the administration would pursue a trade policy seeking a "level playing field" for "American workers and businesses."

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But it didn't elaborate on whether the U.S. would now pursue that by ramping up unilateral trade actions that Trump aides have been weighing.

The decision to issue a statement from just the U.S. side was a break with past practices after similar negotiations held in recent years during the Obama and Bush administrations. In the past, both countries issued common statements summarizing what they had discussed and emphasizing areas of agreement. It was also a contrast with the more amicable joint statement given by Mr. Trump and Mr. Xi during an April Florida summit.

Both sides also canceled plans to hold a press conference at the end of the talks.

It was clear when the talks began Wednesday morning that both sides were braced for a tough day of talks. In his opening remarks, Mr. Ross said he wanted to "rebalance our relationship in a more fair and equitable direction," and, while pointing to modest sector-specific, market-opening agreements that he had reached with Beijing two months earlier, noted "the hardest work remains to be done."

Chinese officials had cautioned against veering off the path of cooperation.

"Dialogue cannot immediately address all differences, but confrontation will immediately damage the interests of both," Chinese Vice Premier Wang Yang told Mr. Ross and his team at outset of the day's meetings.

Wednesday's negotiations offered a kind of a reality check for the Trump administration as it assesses the surprisingly cordial bilateral relationship struck up between the two presidents during their April summit at Mr. Trump's Mar-a-Lago Florida resort. At the time, Mr. Trump set aside his campaign-trail attacks on Chinese trading practices and agreed with Mr. Xi to launch a "100-day action plan" to reset commercial ties through a new "Comprehensive Economic Dialogue."

This week's meetings, the first in that dialogue, were scheduled to mark the end of that 100-day period and to assess whether the two governments can work cooperatively to craft a broad plan easing long-festering trade tensions, or whether Mr. Trump may ramp up plans to take a more adversarial approach. The U.S. leader's trade advisers include longtime China critics.

As preparation for that latter path, Trump aides have been reviewing, among other things, the prospect of imposing tariffs on Chinese steel and solar panels and imposing tighter limits on Chinese investment in the U.S.

The administration has so far chosen not to implement those policies, but Mr. Trump has indicated a frustration with Chinese trade progress and a desire to do more.

"We have to fix the trade with China because it's very, very nonreciprocal," he told reporters last week. "We have the worst of all trade deals...with China."

Mr. Trump's administration has faced a similar dilemma -- between cooperation and confrontation -- in its geopolitical discussions with Beijing. In the weeks since the Mar-a-Lago summit he has edged toward a harder line. Mr. Trump rebuffed Chinese objections in approving news arms sales to Taiwan, which Beijing considers a renegade province, and sent bombers and naval patrols this month to the South China Sea to assert American freedom to navigate those contested waters. Mr. Trump also tightened economic sanctions against companies and banks allegedly doing businesses aiding North Korea's nuclear program.

The North Korea issue in particular may affect Mr. Trump's economic approach to China. The president said earlier that he would cut China some slack on trade in return for Beijing's help curbing Pyongyang's nuclear ambitions. He has since said he was disappointed with China's efforts, which may make him feel freer to yield the trade club.

"In terms of North Korea, our strength is trade," Mr. Trump said last week.

The Trump team early on expressed optimism that it had found a new formula for solving nettlesome trade tensions where prior administration has failed. In May, as part of a quick down-payment, the two governments announced agreement on Chinese market-opening measures in agriculture and finance, with a Chinese pledge to deliver concrete results before this week's meetings.

But some U.S. business groups and affected companies have complained that while China has met the letter of its pledges, it has failed to live up to the spirit of them, removing the promised trade barriers, while leaving other impediments in place. A new tiff flared up this week when Dow Chemical Co. said China had appeared to renege on a promise to provide an expedited review of its genetically modified soybean crops as part of the May pledge to accelerate approval of eight stalled biotechnology products.

The Chinese government said there had been a misunderstanding and that the Dow product hadn't been on their priority clearance list.

--Kate O'Keeffe in Washington and Jacob Bunge in Chicago contributed to this article.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com and Ian Talley at ian.talley@wsj.com

WASHINGTON--High-level economic talks between the U.S. and China ended Wednesday without any concrete agreement or future agenda, leaving the Trump administration's efforts to recast trade ties with Beijing in limbo.

After a full day of bilateral meetings, the U.S. side issued a terse statement saying that "China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve."

The statement from Commerce Secretary Wilbur Ross and Treasury Secretary Steven Mnuchin didn't provide further details on just how much the two sides could agree on, or when they would resume talks.

Chinese officials painted a rosier picture of Wednesday's talks, with Foreign Ministry spokesman Lu Kang describing them as "innovative, practical and constructive," though he reiterated China's displeasure at recent U.S. actions, including arms sales to Taiwan. China's Commerce Ministry didn't immediately comment on the outcome of the dialogue.

U.S. and Chinese officials agreed that "one of the solutions to address the trade imbalance is for the United States to expand its exports to China, instead of reducing imports from China," Chinese Vice Finance Minister Zhu Guangyao said in remarks reported by the official Xinhua News Agency. Beijing is also urging Washington to lift export controls that curb sales of high-tech products to China, Mr. Zhu said.

The failure to take specific steps to close America's $347 billion trade deficit with China--70% of the U.S. global imbalance--raises pressure on the Trump administration to consider shifting from its embrace of cooperation with Beijing toward more confrontation.

Trump aides have been weighing a series of tougher trade policies toward China, from new import barriers on steel and solar panels, to tighter restrictions on investments, but have so far chosen not to implement them.

People familiar with Wednesday's talks said that American negotiators tried, unsuccessfully, to use the threat of new steel tariffs to force the Chinese to commit to specific benchmarks for cutting the country's mammoth production overcapacity in that sector, a big factor dragging down steel prices globally.

The meetings were held to mark the end of a 100-day period that President Donald Trump and Chinese President Xi Jinping had set to come up with a comprehensive plan to reset commercial ties between the world's two largest economies. The lack of any announced plan means they failed to meet that self-imposed deadline.

The decision to issue a statement from just the U.S. side was a break with past practices after similar negotiations held in recent years during the Obama and Bush administrations. In the past, both countries issued common statements summarizing what they had discussed, emphasizing areas of agreement--and usually issuing a list of sector-specific market-opening pledges from China. It was also a contrast with the more amicable joint statement given by Mr. Trump and Mr. Xi during an April Florida summit where they agreed to launch a "Comprehensive Economic Dialogue."

"Many expected at the 100-day point we would have much more substantive points of progress," said Nicholas Lardy, a China scholar at the Peterson Institute for International Economics. He added that the lack of agreement on even modest measures is a sign that U.S.-China relations "are very uncertain and subject to very high risks."

People familiar with the talks said a major sticking point was a demand from the American negotiators to craft a concrete plan, with benchmarks and a timetable, for reducing China's trade surplus with the U.S.

"The administration wanted to put some numerical targets in place and I know China was uncomfortable with that," said Myron Brilliant, the U.S. Chamber of Commerce vice president of international affairs.

More than his predecessors, Mr. Trump has focused not just on removing barriers to American exports, but on trying to curb America's trade deficit, which he has said is a concrete sign of flawed policies. Many economists say Mr. Trump's focus on trade deficits with individual countries is ill-conceived because deficits are driven in large part by macroeconomic factors beyond the control of trade negotiators, like national saving and investment patterns.

Chinese Vice Premier Wang Yang, who headed his delegation, opened Wednesday's talks by saying that the economic teams from both countries "have worked around the clock and have held over 60 rounds of working consultations" since the Florida summit to prepare for this week's session. He portrayed those discussions as more "intense" than intricate negotiations surrounding China's joining the World Trade Organization in 2001.

People familiar with the discussions said American negotiators had been optimistic going into the meetings that they could announce some kind of accords on Chinese regulation of data at multinational companies--a major complaint of U.S. firms doing business there--easing restrictions on foreign auto makers, curbing Chinese agricultural subsidies, and addressing Chinese steel overcapacity.

The stall in economic talks mirrors a similarly rough patch in the Trump administration's diplomatic ties with Beijing. In the weeks since the Mar-a-Lago summit, Mr. Trump rebuffed Chinese objections in approving news arms sales to Taiwan, which Beijing considers a renegade province, and sent bombers and naval patrols this month to the South China Sea to assert American freedom to navigate those contested waters. Mr. Trump also tightened economic sanctions against companies and banks allegedly doing businesses aiding North Korea's nuclear program.

The North Korea issue in particular may affect Mr. Trump's economic approach to China. The president said earlier that he would give China some leeway on trade in return for Beijing's help curbing Pyongyang's nuclear ambitions. He has since said he was disappointed with China's efforts, which may make him feel freer to yield the trade club.

"In terms of North Korea, our strength is trade," Mr. Trump said last week.

Beijing hadn't been likely to grant major concessions to Washington even without recent irritants in the relationship, according to Huo Jianguo, a former Chinese trade official turned researcher.

"Large gaps still exist between the U.S. and China in terms of their economic interests, and there's little consensus on an approach toward bridging those differences," said Mr. Huo, vice chairman of the China Society for World Trade Organization Studies. "Both sides still need to time to adjust their mentalities."

The Trump team early on expressed optimism that it had found a new formula for solving nettlesome trade tensions where prior administrations had failed. In May, as part of a quick down payment, the two governments announced agreement on Chinese market-opening measures in agriculture and finance, with a Chinese pledge to deliver concrete results before this week's meetings.

But some U.S. business groups and affected companies have complained that while China has met the letter of its pledges, it has failed to live up to the spirit of them, removing the promised trade barriers, while leaving other impediments in place.

A new tiff flared up this week when Dow Chemical Co. said China had appeared to renege on a promise to provide an expedited review of its genetically modified soybean crops as part of the May pledge to accelerate approval of eight stalled biotechnology products.

The Chinese government said there had been a misunderstanding and that the Dow product hadn't been on its priority clearance list.

Some American business leaders worry that the stalled talks could create new uncertainty and instability in bilateral economic ties.

"We are disappointed the Comprehensive Economic Dialogue ended at an apparent impasse," John Frisbie, president of the US-China Business Council, said. "It is important for governments to take tangible steps to address longstanding issues and ensure the commercial relationship remains a source of stability in the overall relationship."

Jacob Bunge in Chicago and Chun Han Wong in Beijing contributed to this article.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com and Ian Talley at ian.talley@wsj.com

(END) Dow Jones Newswires

July 20, 2017 07:54 ET (11:54 GMT)