China narrows scope for trade deal with US

Of­fi­cials say Trump re­mains firm on a broader agree­ment

The Morning Call - - BUSINESS CYCLE - By Shawn Don­nan and Jenny Leonard

Chi­nese of­fi­cials are sig­nal­ing they’re in­creas­ingly reluc­tant to agree to a broad trade deal pur­sued by Pres­i­dent Don­ald Trump, ahead of ne­go­ti­a­tions this week that have raised hopes of a po­ten­tial truce.

In meet­ings with U.S. vis­i­tors to Bei­jing in re­cent weeks, se­nior Chi­nese of­fi­cials have in­di­cated the range of top­ics they’re will­ing to dis­cuss has nar­rowed con­sid­er­ably, ac­cord­ing to peo­ple fa­mil­iar with the dis­cus­sions.

Vice Premier Liu He, who will lead the Chi­nese contingent in high-level talks that be­gin Thurs­day, told visit­ing dig­ni­taries he would bring an of­fer to Wash­ing­ton that won’t in­clude com­mit­ments on re­form­ing Chi­nese in­dus­trial pol­icy or the gov­ern­ment sub­si­dies that have been the tar­get of long-stand­ing U.S. com­plaints, one of the peo­ple said.

That of­fer would take one of the Trump ad­min­is­tra­tion’s core de­mands off the ta­ble. It’s em­blem­atic of what an­a­lysts see as China’s strength­en­ing hand as the Trump ad­min­is­tra­tion faces an im­peach­ment cri­sis — which has re­cently drawn in China — and a slow­ing econ­omy blamed by busi­nesses on the dis­rup­tion caused by the pres­i­dent’s trade wars.

Peo­ple close to the Trump ad­min­is­tra­tion say the im­peach­ment in­quiry isn’t af­fect­ing trade talks with China. Any at­tempt to por­tray any­thing dif­fer­ent is an at­tempt to weaken the U.S. hand at the ne­go­ti­at­ing ta­ble and, they ar­gue, would be a mis­cal­cu­la­tion by the Chi­nese.

U.S. stocks de­clined, the yen edged up and the yuan slipped Mon­day. Trea­suries fluc­tu­ated.

China — be­set by its own es­ca­lat­ing po­lit­i­cal cri­sis in Hong Kong — was drawn into the Wash­ing­ton furor af­ter Trump last week called for a Chi­nese in­ves­ti­ga­tion into his Demo­cratic ri­val Joe Bi­den and the for­mer vice pres­i­dent’s son, mo­ments af­ter threat­en­ing an­other es­ca­la­tion in the trade spat.

Trump in­sisted on Fri­day that there’s no link­age. Yet the pres­i­dent’s lat­est com­ments sug­gest why Chi­nese lead­ers, al­ready frus­trated with what they see as the pres­i­dent’s im­petu­ous con­duct in the trade talks, may see room to take ad­van­tage.

China’s lead­er­ship “are in­ter­pret­ing the im­peach­ment dis­cus­sion as a weak­en­ing of Trump’s po­si­tion, or cer­tainly a dis­trac­tion,” said Jude Blanchette, an ex­pert on China’s pol­i­tics at the Cen­ter for Strate­gic and In­ter­na­tional Stud­ies.

“Their cal­cu­la­tion is that Trump needs a win” and is will­ing to make com­pro­mises on sub­stance as a re­sult, he said.

In a state­ment Mon­day, the White House said the gather­ing “will look to build on the deputyl-evel talks of the past weeks. Top­ics of dis­cus­sion will in­clude forced tech­nol­ogy trans­fer, in­tel­lec­tual prop­erty rights, ser­vices, non-tar­iff bar­ri­ers, agri­cul­ture, and en­force­ment.”

Trump has said re­peat­edly he would en­ter­tain only an al­len­com­pass­ing deal with China. Peo­ple close to him say he re­mains firm in that view.

“We’ve had good mo­ments with China. We’ve had bad mo­ments with China. Right now, we’re in a very im­por­tant stage in terms of pos­si­bly mak­ing a deal,” Trump told re­porters on Fri­day. “But what we’re do­ing is we’re ne­go­ti­at­ing a very tough deal. If the deal is not go­ing to be 100% for us, then we’re not go­ing to make it.”

Peo­ple fa­mil­iar with the state of play say con­tacts that re­sumed over the sum­mer af­ter a break­down in May have fo­cused on how to resume ne­go­ti­a­tions and avoid fur­ther es­ca­lat­ing the tar­iff wars that have un­nerved fi­nan­cial mar­kets.

Yet those talks have cen­tered more on a time­line for im­ple­ment­ing a lim­ited deal rather than the sub­stance of pro­vi­sions where the two sides are at odds.

Dis­cus­sions have fo­cused on what U.S. ad­min­is­tra­tion of­fi­cials view as a three-phase process, peo­ple fa­mil­iar with the talks said. The se­quence would in­volve large-scale pur­chases of U.S. agri­cul­tural and en­ergy ex­ports by China, im­ple­ment­ing in­tel­lec­tual-prop­erty com­mit­ments China made in a draft agree­ment this year and, fi­nally, a par­tial roll­back of U.S. tar­iffs.

JIM WATSON/GETTY-AFP

China’s Vice Premier Liu He, left, speaks with Pres­i­dent Don­ald Trump dur­ing a trade meet­ing in April.

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