Trans-Pacific View

Why the US-China Trade Negotiations Are Stuck

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Trans-Pacific View

Why the US-China Trade Negotiations Are Stuck

The problem centers on the most mistranslated word in the Chinese language: guanxi.

Why the US-China Trade Negotiations Are Stuck
Credit: Official White House Photo by Andrea Hanks

People who know a little bit about China will tell you that the most important component of a successful negotiation with the Chinese is guanxi, which is translated into English as “relationship.” In other words, we are told, in order to achieve one’s goals in China, it is necessary to spend time and make efforts to build a good relationship with one’s counterparts. Trust, sincere and reliable intentions, and goodwill are the foundation of any lasting deal in China, goes the conventional wisdom.

Is this true?

If it were, then the Chinese should, according to the formula, be bending over backwards to accommodate the U.S. government’s requests to balance trade and protect intellectual property. Why?

An objective case can be made that the United States has gone to significant lengths to support the development efforts of the People’s Republic of China through investment, technology transfers, and education of its students in the United States, to name but a few of the measures that the United States has used since the 1980s. These efforts have brought a mixed bag of both benefit and harm to the United States, a situation which the Trump administration is determined to adjust in America’s favor.

With American investment into China totaling, by 2016, over $80 billion by some estimates and much more by others, which take into account American capital that flowed first into Hong Kong and then into the mainland, the United States has been China’s largest investor outside of Asia (not including the British Virgin Islands, which is usually used as a pass-through investment platform for capital from other sources).

China has also been encouraged to educate its youth in the United States. In 2018, the U.S. government reported that 340,518 Chinese students were in the United States, making up 30 percent of the foreign student population in America.

And above-board technology transfers in industry, high-tech, and agriculture have given China a competitive edge in sectors in which America and the West had previously dominated.

Shouldn’t all of this add up to a substantial pot of guanxi from which to draw significant concessions from China?

Apparently not.

Is it possible that guanxi doesn’t mean what we have been thinking it means all this time?

The Chinese character guan, 关, means “closed.” The character xi 系 means “system.”

That’s right — guanxi means “closed system.” It doesn’t mean “relationship” at all, particularly in the Western sense of the word. Thus, having guanxi, building guanxi, and using guanxi really means having access to a closed system of relationships that can make things work in your favor.

That system in olden days was rooted in imperial, dynastic China. Today its power resides in the Chinese Communist Party (CCP).

By definition, therefore, a non-Chinese can, at best, only get close to the periphery of that system, finding people who have the inside track that makes things work, and leveraging their power within their system.

When looking at the latest round of U.S.-China trade talks, experienced negotiators in China will have recognized the latest Chinese gambit. The Chinese side used a tactic that would have been considered rude and unsuitable to employ on one considered a true friend, a member of one’s own “closed system.” As reported by the White House, at the last minute, after months of discussion, previously agreed upon points were unilaterally scrapped by the Chinese side. Rather than going forward, or at least maintaining a status quo, the Chinese suddenly declared that the American demands infringed on the “sovereign rights and dignity of China.”

The timing of this negotiating tactic is familiar as well. In negotiations in which the Chinese side has to rang bu, meaning “step back” or “give in” to an opponent, officialdom will show its displeasure by seeming to scuttle discussions, ripping up tentative points of agreement, and retreating into victimhood, all at a moment when the opposite side thinks that a deal is imminent.

This sudden Chinese about-face, occurring as it does when the negotiating partner is feeling hopeful and optimistic that the end is in sight, usually produces a strong reaction. Particularly on those uninitiated in this tactic, the effect is often highly disconcerting, confusing, and maddening. Designed to throw one’s opponent off balance, the mechanism very often works. Foreign negotiators often react vociferously. This is the point at which open and very real anger may be displayed. It’s also the point at which many on the foreign side walk out of meetings, and then rail on about the bad faith of the Chinese.

And the most confusing part of it all is usually the misunderstanding of one’s real “relationship” with the Chinese. The American side, in this case, may think it has a great deal of guanxi, based on American support of China throughout the years, but the Chinese side is clearly telling them, “You don’t.” In fact, the message is, “You can’t.”

In truth, no matter how much America has “done” for China, the United States can never have the kind of relationship with China that depends on leveraging guanxi in the truest sense of the term. It’s pointless to negotiate from a position that Washington, decidedly not of the inner sanctum of the CCP, can never have. The United States, indeed the foreign community as a whole, would be better served by negotiating on their own terms, and from their own positions, rather than attempting to build relationships with China that are essentially futile. The old adage “be yourself” never sounded so good.

To a large extent, it seems that President Trump senses this; he has drawn the terms, and is sticking by them, increasing the number of goods that are subject to tariffs, and raising the tariff rate to 25 percent. Publicly at least, he sports ease and nonchalance over the whole thing.

Meanwhile, the Chinese are, in truth, flummoxed. The word on the street in Shanghai, for example, is that in one economic zone alone, of the 500 businesses that existed in 2017, less than 50 are still afloat today.