US-China trade talks center on rivalry over technology

A high-powered U.S. delegation arrived in Beijing on Thursday for talks with Chinese officials on defusing tensions that are propelling the world’s two largest economies toward a trade war.

Treasury Secretary Steven Mnuchin is leading the group, which includes Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer. Liu He, President Xi Jinping’s top economic adviser, was heading the Chinese side in the talks, which analysts say appear unlikely to yield a breakthrough given the two sides’ intensifying rivalry in strategic technologies.

President Donald Trump said he expected relations with Beijing to stay on an even keel.

“Our great financial team is in China trying to negotiate a level playing field on trade!” he said on Twitter late Wednesday. “I look forward to being with President Xi in the not too distant future. We will always have a good (great) relationship!”

Trump is seeking to cut the chronic U.S. trade deficit by $100 billion and gain concessions over policies that foreign companies say force them to share technology with Chinese partners in order to gain market access.

His administration has threatened to impose new tariffs on roughly $150 billion in Chinese goods — prompting China to announce its own tariffs on U.S. goods.

The dispute has deepened as China stepped up efforts to overtake western industry leaders in advanced technologies, especially for semiconductors, the silicon brains required to run smartphones, connected cars, cloud computing and artificial intelligence.

Under Xi, a program known as “Made in China 2025” aims to make China a tech superpower by advancing development of industries that in addition to semiconductors includes artificial intelligence, pharmaceuticals and electric vehicles. The plan mostly involves subsidizing Chinese firms. But it also does require foreign companies to provide key details about their technologies to Chinese partners.

Beijing looks unlikely to cede any ground on that strategic blueprint.

“The Made in China 2025 industrial policy concerns China’s longterm development plan, so the overall direction won’t change at all,” said Yu Miaojie, professor at Peking University’s National School of Development. Yu says China would rather cut the trade deficit by importing high-tech products from the U.S. that are currently tightly restricted.

Striking an adamant tone, the state-run Global Times newspaper said Thursday in a commentary that it’s “our sovereign right to develop high-tech industry and it is connected to the quality of rejuvenation of the Chinese nation. It will not be abandoned due to external pressure.”

Both sides have shown a diversity of opinions, with China recently moving to loosen a restriction on foreign ownership of automakers to minority stakes.

But the rival views in Washington, reflected in the makeup of the U.S. team, could undermine the U.S. negotiating stance, the consulting firm Eurasia Group said in a research note.

“The U.S. delegation headed to Beijing is too large and unwieldly to accomplish much; it is a reflection of inter-agency rivalry on the U.S. side and this will produce more posturing than actual negotiations with the Chinese,” the firm said.

“The trip will produce few results and increases the risk that tariffs are adopted in the near future,” it added.

Washington’s recent decision to ban Chinese telecom gear maker ZTE from importing U.S. components in a sanctions-related case drove home to Beijing its costly vulnerability to foreign sources for advanced microchips.

The “Made in China 2025” plan calls for domestic producers to supply 70 percent of the country’s chip demand.

The Trump administration’s efforts may actually spur China to ramp up efforts to develop its domestic industry as it strives to fulfill Xi’s vision, said Jian-Hong Lin, an analyst at research firm TrendForce.

China now consumes nearly 60 percent of the world’s semiconductors but supplies only about 16 percent, according to PWC. The country spends more than $200 billion a year on foreign-made semiconductors, which in 2015 surpassed crude oil as the country’s biggest import.

Experts say Chinese chipmakers are five years behind their U.S. and Asian rivals and that increasingly high technological hurdles and a meager talent pool are hindering the effort to catch up with dominant U.S., Japanese, South Korean and Taiwanese manufacturers.

As Chinese researchers and chipmakers strive to catch up, the technology is evolving, with new materials transforming the future landscape of the electronics industry. The latest advanced chips are highly complex to make because of their increasingly tiny “nodes,” measured in nanometers, that make them faster and more power-efficient.