On April 13, speaking to reporters during the International Monetary Fund and World Bank spring meetings, U.S. Treasury Secretary Steven Mnuchin optimistically stated that Washington and Beijing were nearing the final round of talks to conclude the protracted U.S.-China trade dispute. He repeated a previous claim that the biggest obstacle to a brokered trade deal – how to enforce the agreement – is nearly settled. “I would expect that the enforcement mechanism works in both directions, that we expect to honor our commitments, and if we don’t, there should be certain repercussions, and the same way in the other direction,” Mnuchin said. His comments echoed those made by U.S. Trade Representative Robert Lighthizer during his Congressional Hearing last February.
If the above reporting is indeed accurate, then U.S. negotiators would be prudent to heed the telling remarks Chinese President Xi Jinping made on December 18 as they make the final push to close the long-anticipated deal. During a speech in Beijing to celebrate the 40th anniversary of China’s reform and opening up, Xi emphatically stated, “No one is in a position to dictate to the Chinese people what should or should not be done.” Therefore, U.S. negotiators should be cautious of promises privately made across the negotiating table and assurances publicly given in the open press. More often than not, Beijing gives expedient guarantees during negotiations – particularly during the later stages – but rarely gives much that is substantive and enduring in the end. Instead, Chinese negotiators make grandiose gestures and empty promises to achieve their short-term objective of moving along negotiations and buying time and space to set the conditions to maintain and realize their long-term goals post-negotiation.
As I outlined in article for War on the Rocks last January, Xi will ultimately fail to keep his promises to U.S. President Donald Trump unless he is forcefully, consistently, and persistently encouraged to do so. Xi relies on what he perceives to be Washington’s short attention span, lack of follow-through, and policy inconsistency. Xi likely believes that Trump will make the deal and then move on, with Congress distracted by domestic issues like the nearing 2020 presidential cycle – which brings with it the possibility of a new administration with new priorities and new opportunities that Beijing can shape in its favor.
Promises and Assurances
True to form, Beijing has conveniently proposed several “late” initiatives to show Washington that it is willing to negotiate in good faith despite giving few specifics and assurances; lull U.S. negotiators to a false sense of security; hint at potential “quid pro quo” opportunities; and take the information high ground.
On March 15, Beijing enacted legislation to replace three extant domestic laws on Chinese-foreign equity joint ventures, non-equity joint ventures, and wholly foreign-owned enterprises. The new law will serve as the country’s fundamental law on foreign investment.
Two days later, during a press conference held on the sidelines of China’s annual legislative session, People’s Bank of China Governor Yi Gang vowed not to devalue the yuan to help Chinese exports in foreign markets without giving any details on how to enforce such a currency agreement and despite past practices of doing so.
On March 25, Beijing floated cloud concessions to foreign technology firms. Under the proposal, foreign providers would be allowed to own data centers as part of a pilot program in a designated free-trade zone; and Beijing would issue more licenses to operate data centers and lift the 50 percent equity cap that limits ownership for certain foreign cloud-service providers. Until recently, Beijing has refused to budge, citing national-security reasons and stringent domestic cybersecurity laws.
On April 1, Beijing announced that it will ban all types of fentanyl in a move aimed at stemming the supply and delivery of the highly addictive opioid into the United States.
Two days later, White House Economic Advisor Larry Kudlow told reporters that during the course of the trade talks, Beijing has acknowledged for the first time that the United States has legitimate gripes about intellectual property theft, forced technology transfer, and cyber espionage.
Lastly, in early April, China boosted purchases of U.S. farm products (cotton, soybean, pork, corn, and feed grain sorghum), providing another goodwill gesture to move along the trade talks.
Actions and Follow-Through
Although these Chinese overtures may seem promising, their opportunistic timing and questionable nature are consistent with past Chinese negotiating tactics. Washington should be wary of being tempted by these vague, ambiguous, and uncertain concessions (or distractions) that Beijing may be dangling as an effort to avoid discussion on longer-term structural reforms, which it does not want to do unless coerced to do so. From China’s perspective, the structural changes that Washington demands will undermine its global competitive advantage, slow its deliberate march toward the Chinese Dream, and represent another manifestation of the United States and the biased Western-oriented world order trying to contain China’s rise and keep it from assuming its rightful place on the world stage.
All in all, the aforesaid proposals should not be uncritically taken at face value. The presumption should be that they are disingenuous concessions unless proven otherwise. Hence, follow-through is needed if there is going to be any hope for a substantive and enduring trade agreement.
The United States must negotiate guarantees that the new foreign investment legislation will actually address the core U.S. concerns, rather than remaining unenforced in practice. The Trump administration must also demand tangible, measurable, and enforceable measures to stop the systematic theft of intellectual property, forced technology transfer, and cyber espionage. Talk without the support of action means nothing.
Washington should also get written assurances that China will refrain from future currency manipulation, to include tangible penalties, greater disclosure of economic actions, and robust enforcement rules.
The United States must not let Beijing back out of its cloud concessions either, and should develop a workable implementation framework to allow for details afterwards. Key questions remain: Would China allow free flow of data from the operations in the zone to the rest of the country? What kind of data services can foreign firms setting up data operations in the zone provide? What kind of customers can they offer such services to?
Likewise, Washington must verify the comprehensive banning of fentanyl and include measurable metrics to curtail the supply and delivery of the deadly opioid into the United States.
Finally, the Trump administration should push China to open its corn, rice, wheat, and other agriculture markets to broader market forces that would allow for freer imports.
At the end of the day, the old Arabian proverb “a promise is a cloud, fulfillment is rain” is apropos. Washington must trust but verify, establishing and institutionalizing enforcement mechanisms when it comes to structural changes. This strategic opportunity is America’s best chance to favorably redefine the bilateral relations between the world’s two largest economies for the next 50 years. It will be much more difficult to moderate bad Chinese behavior or seek additional structural changes once the trade deal is signed. So better to do it right from the onset — even if it means extending trade talks a few more weeks.
Tuan Pham is a seasoned China watcher with over 20 years of professional experience in the Indo-Pacific who is widely published in international relations and national security affairs. The views expressed are his own.