US-China: Trade war is only getting worse

Any expectations that high-level U.S.-China talks this week could produce a grand bargain on trade have all but evaporated as both sides continue to harden their positions, Foreign Policy writes in the article The Trade War Is Only Getting Worse.

With a heavyweight Chinese delegation headed by Vice Premier Liu He coming to Washington this week to meet with top-level Trump administration officials, the first such meeting since May, there was hope that both sides could turn the clock back to this spring, when they appeared to be successfully grappling with the contentious issues at the heart of the economic dispute between the United States and China. President Donald Trump had even offered an olive branch by deferring some U.S. tariffs on China that were set to begin on Oct. 1 to give the talks a chance. But China now seems to have ruled out the very concessions that U.S. negotiators most want to see⁠—namely, a reform of China’s state-led economic model. Chinese expectations are so low that the delegation is reportedly already planning to cut short its stay in Washington. Making matters worse is the spat between China and the NBA over comments by the general manager of the Houston Rockets basketball team regarding the protests in Hong Kong, which Beijing views as an act of interference in its domestic affairs.

The Trump administration’s own actions aren’t helping the mood. The United States blacklisted eight Chinese technology firms and a score of other entities this week for their role in the internment of Uighur minorities in China; the administration also announced on Tuesday a visa ban on Chinese officials related to the Uighur crackdown. Previously, the administration levied sanctions on state-owned Chinese shipping firms that had done business with Iran. The administration is also reportedly mulling new measures that would restrict U.S. investment in China, a bid to further decouple the two economies.

“There is a disconnect between the Trump administration and China about the very scope of this week’s talks—Trump is holding out for a comprehensive deal, and the Chinese don’t appear to be in the mood,” said Eswar Prasad, a professor of international trade policy at Cornell University. This week’s meeting was meant to be a chance for both sides to recapture the momentum they had earlier this year, before talks broke down over what the United States called backtracking by China in terms of concessions it was willing to make. But Chinese officials have made clear in recent days that they are unwilling to quit using government subsidies for state firms or to abandon its state-run industrial policy—the very reforms that the Trump administration has sought to wrest out of China by steadily increasing tariffs on Chinese exports.For some China watchers, Beijing’s apparently hardened stance simply reflects that the Trump’s administration’s objectives were always too ambitious. “The idea that we were going to get a change in China’s development model was not realistic,” said Derek Scissors, a China expert at the American Enterprise Institute. “We were never going to get that.”

But there are two self-inflicted administration actions that could make it even harder to get the kind of comprehensive deal that Trump and especially his top trade officials have repeatedly called for. First, while pushing China to undertake free-market reforms, end currency manipulation, and stop subsidizing state-owned firms, the United States under Trump is itself moving away from the free market. Trump has embraced protectionism on questionable grounds of national security, interfered with the Federal Reserve, sought to weaken the U.S. dollar to gain an edge on exports, showered favored constituencies with billions of dollars in handouts, and aimed to use emergency powers to compel American businesses to relocate and tear up their supply chains. “The Chinese recognize that there is a yawning gap between what the administration is asking China to do, and what it is doing itself,” Prasad said. “The domestic space to make these concessions has been squeezed, because even the United States is increasing government interference in the running of the economy. … It’s definitely made it harder for the reformers to push their narrative.”

At the same time, Trump’s political woes give China less reason to be conciliatory. The expanding impeachment inquiry into the president and a brewing battle between the White House and Congress over lawmakers’ investigations into the administration’s actions weaken Trump’s hand.