By Lingling Wei in Beijing and Bob Davis in Washington
The new hard line taken by China in trade talks -- surprising
the White House and threatening to derail negotiations -- came
after Beijing interpreted recent statements and actions by
President Trump as a sign the U.S. was ready to make concessions,
said people familiar with the thinking of the Chinese side.
High-level negotiations are scheduled to resume Thursday in
Washington, but the expectations and the stakes have changed
significantly. A week ago, the assumption was that negotiators
would be closing the deal. Now, they are trying to keep it from
collapsing.
Adding to the pressure, the U.S. formally filed paperwork
Wednesday to raise tariffs on $200 billion of Chinese goods to 25%
from the current 10% at 12:01 a.m. Friday. Beijing's Commerce
Ministry responded by threatening to take unspecified
countermeasures.
The hardened battle lines were prompted by Beijing's decision to
take a more aggressive stance in negotiations, according to the
people following the talks. They said Beijing was emboldened by the
perception that the U.S. was ready to compromise.
In particular, these people said, Mr. Trump's hectoring of
Federal Reserve Chairman Jerome Powell to cut interest rates was
seen in Beijing as evidence that the president thought the U.S.
economy was more fragile than he claimed.
Beijing was further encouraged by Mr. Trump's frequent claim of
friendship with Chinese President Xi Jinping and by Mr. Trump's
praise for Chinese Vice Premier Liu He for pledging to buy more
U.S. soybeans.
An April 30 tweet, in which Mr. Trump coupled criticism of Mr.
Powell with praise of Chinese economic policy, especially caught
the eye of senior officials. "China is adding great stimulus to its
economy while at the same time keeping interest rates low," Mr.
Trump tweeted. "Our Federal Reserve has incessantly lifted interest
rates."
"Why would you be constantly asking the Fed to lower rates if
your economy is not turning weak," said Mei Xinyu, an analyst at a
think tank affiliated with China's Commerce Ministry. If the U.S.'s
resolve was weakening, the thinking in Beijing went, the U.S. would
be more willing to cut a deal, even if Beijing hardened its
positions.
That assessment, however, flies in the face of a strong U.S.
economy. Gross domestic product in the first quarter rebounded from
the end of 2018, with growth clocking in at a seasonally adjusted
annualized rate of 3.2%, up from 2.2% the prior quarter. The jobs
report for April, released on Friday, showed the unemployment rate
falling to 3.6%, the lowest in nearly 50 years.
But at the same time, China's economy has stabilized this year
following months of weakness. Although China's exports dropped
unexpectedly in April, its first-quarter growth came in at 6.4%,
beating market expectations. The generally improving economic
picture gave Beijing more confidence in trade talks, as did a
recent conference on the country's vast infrastructure-spending
program, called the Belt and Road Initiative, which was attended by
about 40 heads of government and state.
Chinese leaders saw the conference turnout "as China has more
leverage to improve relations with other countries and with the
U.S. business community," said Brookings Institution China
specialist Cheng Li. "It made them play hardball."
If China misread the signals -- and vice versa -- it wouldn't be
the first time.
The history of U.S.-China trade negotiations is filled with
misunderstandings, as the two nations, with very different
political systems, struggle to figure out each other's
intentions.
When China was negotiating to join the World Trade Organization
in the late 1990s, for instance, China's premier visited Washington
mistakenly expecting then-President Clinton to approve a deal. At
the end of negotiations in Beijing, then-U.S. Trade Representative
Charlene Barshefsky walked out on the talks, convinced that Beijing
was jerking her around, only to come back and finish the deal.
In the current negotiations, the U.S. thought China agreed to
detail the laws it would change to implement the trade deal under
negotiation. Beijing said it had no intention of doing so,
triggering Mr. Trump's threat Sunday to escalate tariffs and
bringing the dispute into the open.
"China has often pushed back on specific commitments during the
negotiations," said Clete Willems, who recently left as White House
trade negotiator to take a job at the law firm of Akin Gump. "These
are difficult things to undertake, but critical to a successful
outcome."
In addition to the tariff increase slated for Friday, Mr. Trump
has also said he plans to "shortly" levy new 25% tariffs on $325
billion of Chinese goods, a move that would widely affect consumer
goods.
The aggressive U.S. response initially cast doubt on a trip by
Mr. Liu to Washington this week. Mr. Liu is now scheduled to lead
talks beginning Thursday, a day later than originally planned.
Unlike prior visits, Mr. Liu wasn't given the title of Mr. Xi's
"special envoy," suggesting that he doesn't have the power to make
significant compromises. The Chinese delegation has also been
slimmed down from the 100-plus team originally planned, although
the entourage will also include Commerce Vice Minister Wang Shouwen
and Finance Vice Minister Liao Min.
In another apparent sign of mixed signals, Trump administration
officials had thought they had made it clear that they were weary
of negotiations and that it was time for Beijing to make specific
commitments to change laws, including adding protections for
intellectual property and barring the forced transfer of U.S.
technology.
Comments last week by Mick Mulvaney, the president's acting
chief of staff, were supposed to drill home that notion. The talks
"won't go on forever," he said in Los Angeles. "At some point in
any negotiation you go, 'We're close to getting something done so
we're going to keep going.' On the other hand, at some point you
throw up your hands and say, 'This is never going anywhere.'"
But at the same conference, Treasury Secretary Steven Mnuchin
sent the opposite signal, saying the talks were "getting into the
final laps."
As talks resume Thursday, one big question mark is whether China
will agree to U.S. demands for changes in Chinese law to implement
the trade deal. Beijing maintains this would impinge on Chinese
sovereignty and take too long to implement, but Beijing had made
similar commitments in prior trade deals, including those it signed
to join the WTO in 2001.
U.S. officials say Beijing has failed to make good on those
commitments, while China has promised to further liberalize its
economy.
"The U.S. is correct to seek a multiprong approach of not
relying solely on commitments but also actually changes to the
laws, so as to ensure Chinese leadership intentions are fully
conveyed down to all local levels of government," said Harvard Law
Professor Mark Wu.
Write to Lingling Wei at lingling.wei@wsj.com and Bob Davis at
bob.davis@wsj.com
(END) Dow Jones Newswires
May 08, 2019 19:53 ET (23:53 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.