China trade showdown: Treasury Secretary Mnuchin arrives in Beijing for talks

A delegation led by U.S. Treasury Secretary Steven Mnuchin has arrived here for two days of trade negotiations with their Chinese counterparts. The talks come amid high tension. The U.S. is angry about alleged Chinese theft of intellectual property from U.S. firms. China is not pleased with the threat of tariffs on up to $150 billion in Chinese goods. Although both sides are willing to come to the table, neither is talking about any kind of quick resolution.

Continue Reading Below

Former Commerce Department official Frank Lavin knows the region, and knows the players. He was the Under-Secretary of Commerce for International Trade under President George W. Bush, and he says these negotiations appear to be entering a second phase. “Phase one was a high-stakes game of ‘chicken,’ in which each side is threatening the other with tariffs,” Lavin tells FOX Business. “Phase two is this week. It’s ‘let’s make a deal.’ Let’s see how close we can get to our goals without imposing tariffs.”

It’s important to understand what those goals are to understand where this trade dispute stands. The U.S. appears to have two large demands, neither of which the Chinese are expected to be willing to match. First, President Trump has called for America’s $100 billion annual trade deficit with China to be cut by $100 billion. There’s no indication China is willing to play ball. Second, China has an initiative called “Made in China 2025.” It’s a $300 billion plan from President Xi Jinping to fund the country’s upgrade of advanced technologies. President Xi essentially wants to turn China into a high-tech powerhouse by achieving what the government here calls “self-sufficiency.” China wants to do it alone, upsetting the global supply chain, and possibly breaking World Trade Organization rules. From the U.S. point of view, “Made in China 2025” is a non-starter. For the Chinese, it’s the future.

Secretary Mnuchin spoke to “Mornings with Maria” on FOX Business earlier this week about his expectations. “I’m cautiously optimistic about the meetings,” Mnuchin told Maria Bartiromo. “I don’t want to predict what’s going to happen and what’s not going to happen. We’re going to go over there and have discussions. There are issues that President Trump has been focused on for over the last year and hopefully we’ll make significant progress.”

In addition to Mnuchin, the U.S. group includes: Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer, and U.S. Ambassador to China Terry Branstad. Two of President Trump’s top economic advisors, seen as rivals when it comes to trade, are also here. Both Larry Kudlow and Peter Navarro have joined Mnuchin. China’s delegation will include newly minted Vice Premier Liu He. Liu is Harvard-educated, and is said to be close to President Xi. Experts tell us there are certainly areas where progress is possible. Think about tariffs imposed on American automakers as a possibility. Big picture, though, it’s the sticking points mentioned above that make these talks more likely to be just one phase in a very long process.