China, US discuss road map for talks
GLOBAL MARKETS ON EDGE AMID UNCERTAINTY OVER TRADE DEAL
China and the United States discussed a road map for the next stage of their trade talks yesterday, during a telephone call between Vice-Premier Liu He and US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer.
US President Donald Trump and Chinese President Xi Jinping agreed at a December 1 meeting in Argentina to a truce that delayed the planned January 1 US increase of tariffs to 25 per cent from 10 per cent on $200 billion (Dh734.6 billion) worth of Chinese goods.
Lighthizer said on Sunday that unless US-China trade talks wrapped up successfully by March 1, new tariffs would be imposed, clarifying there was a “hard deadline” after a week of seeming confusion among Trump and his advisers.
China’s commerce ministry said in a statement Liu had spoken to Mnuchin and Lighthizer yesterday morning, Beijing time, on a pre-arranged telephone call.
“Both sides exchanged views on putting into effect the consensus reached by the two countries’ leaders at their meeting, and pushing forward the timetable and road map for the next stage of economic and trade consultations work,” the ministry said.
It did not elaborate.
A US Treasury spokesman confirmed the call with Liu took place, but offered no further details. The US Trade Representative’s office did not immediately respond to a query about the call.
The Wall Street Journal, citing people familiar with the issue, said Liu planned to go to Washington after the new year.
The Harvard-education Liu, Xi’s top economic adviser, is leading the talks on the Chinese side.
In comments reported separately by China’s Foreign Ministry, the government’s top diplomat, State Councillor Wang Yi, said if China and the United States cooperated, it would benefit the whole world.
Positive light
“If China and the United States are antagonistic, then there are no winners, and it will hurt the whole world,” Wang told a forum.
The United States should look at China’s development in a more positive light, and constantly look to “expand the space and prospects for mutual benefit,” he said.
Global markets are jittery about a growing clash between the world’s two largest economic powers over China’s huge trade surplus with the United States and Washington’s claims that Beijing is stealing intellectual property and technology.
The arrest of a top executive at China’s Huawei Technologies Co Ltd has also roiled global markets amid fears that it could further inflame the China-US trade row.
If you only scan the headlines, you could be forgiven for thinking that the US-China trade war is mainly about tariffs. After all, the president and trade-warrior-in-chief has called himself “Tariff Man”.
And the tentative trade deal between President Donald Trump and President Xi Jinping was mainly about tariffs, especially on items like automobiles. But the startling arrest in Canada of a Chinese telecom company executive should wake people up to the fact that there’s a second US-China trade war going on — a much more stealthy conflict, fought with weapons much subtler and more devastating than tariffs.
And the prize in that other struggle is domination of the IT industry. The arrested executive, Wanzhou Meng, is the chief financial officer of telecom-equipment manufacturer Huawei Technologies Co. The official reason for her arrest is that Huawei is suspected of selling technology to Iran, in violation of US sanctions.
It’s the second big Chinese tech company to be accused of breaching those sanctions — the first was ZTE Corp in 2017. The US punished ZTE by forbidding it from buying American components — most importantly, telecom chips made by US-based Qualcomm Inc. Those purchasing restrictions were eventually lifted after ZTE agreed to pay a fine, and it seems certain that Huawei will also eventually escape severe punishment. But these episodes highlight Chinese companies’ dependence on critical US technology. The US still makes — or at least, designs — the best computer chips in the world.
China assembles lots of electronics, but without those crucial inputs of US technology, products made by companies such as Huawei would be of much lower-quality.
Export restrictions, and threats of restrictions, are thus probably not just about sanctions — they’re about making life harder for the main competitors of US tech companies.
Huawei passed Apple Inc. to become the world’s second-largest smartphone maker by market share. This marks a change for China, whose companies have long been stuck doing low-value assembly while companies in rich countries do the high-value design, marketing and component manufacturing.
US moves against Huawei and ZTE may be intended to force China to remain a cheap supplier instead of a threatening competitor.
The subtle, far-sighted nature of this approach suggests that the impetus for the high-tech trade war goes far beyond what Trump, with his focus on tariffs and old-line manufacturing industries, would think of. It seems likely that US tech companies, as well as the military intelligence communities, are influencing policy here as well.
In fact, more systematic efforts to block Chinese access to US components are in the works. The Export Control Reform Act, passed this summer, increased regulatory oversight of US exports of “emerging” and “foundational” technologies deemed to have national-security importance.
Although national security is certainly a concern, it’s generally hard to separate hightech industrial and corporate dominance from military dominance, so this too should be seen as part of the trade war.
A second weapon in the high-tech trade war is investment restrictions. The Trump administration has greatly expanded its power to block Chinese investments in US technology companies, through the Committee on Foreign Investment in the US.
The goal of investment restrictions is to prevent Chinese companies from copying or stealing American ideas and technologies. Chinese companies can buy American companies and transfer their intellectual property overseas, or have their employees train their Chinese replacements.
Access to industrial secrets
Even minority stakes can allow a Chinese investor access to industrial secrets that would otherwise be off-limits. By blocking these investors, the Trump administration hopes to preserve US technological dominance, at least for a little while longer.
Notably, the European Union is also moving to restrict Chinese investments. The fact that Europe, which has opposed Trump’s tariffs, is copying American investment restrictions, should be a signal that the lesspublicised high-tech trade war is actually the important one.
The war shows that for all the hoopla over manufacturing jobs, steel, autos and tariffs, the real competition is in the tech sector. Losing the lead in the global technology race means lower profits and a disappearing military advantage.
Bluntly put, the US can afford to lose its lead in furniture manufacturing; it can’t afford to lose its dominance in the tech sector.
The question is whether the high-tech trade war will succeed in keeping China in second place. China has long wanted to catch up in semiconductor manufacturing, but export controls will make that goal a necessity rather than an aspiration.
And investment restrictions may spur China to upgrade its own home-grown research and development capacity.
In other words, in the age when China and the US were economically co-dependent, China might have been content to accept lower profit margins and keep copying American technology instead of developing its own.
But with the coming of the high-tech trade war, that co-dependency is coming to an end. The US and EU moves against Chinese tech should be seen as the first shots in a long war.