U.S., China ap­pear to brace for the long haul in con­tin­u­ing trade dis­pute

The News-Times - - BUSINESS -

With ne­go­ti­a­tions on hold and tar­iffs pil­ing up, the United States and China ap­pear to be brac­ing for a pro­longed stand­off over trade.

Bei­jing is air­ing Korean War movies (an­tag­o­nist: Amer­ica) to arouse pa­tri­otic feel­ings in the Chi­nese pub­lic and of­fer­ing tax cuts to soft­ware and chip com­pa­nies as U.S. ex­port con­trols threaten Chi­nese tech com­pa­nies.

In Wash­ing­ton, Trea­sury Sec­re­tary Steven Mnuchin is talk­ing to Wal­mart and other com­pa­nies about find­ing ways to ease the pain if Pres­i­dent Don­ald Trump goes ahead with plans to ex­tend im­port taxes to the $300 bil­lion in Chi­nese prod­ucts that haven’t al­ready been hit with tar­iffs.

And the Trump ad­min­is­tra­tion is work­ing on an aid pack­age for Amer­i­can farm­ers hurt by China’s re­tal­ia­tory tar­iffs on soy­beans and other U.S. agri­cul­tural prod­ucts — on top of last year’s

$11 bil­lion farm bailout.

Mnuchin and U.S. Trade Rep­re­sen­ta­tive Robert Lighthizer wrapped up an 11th round of talks with the Chi­nese ear­lier this month with­out reach­ing an agree­ment to re­solve a dis­pute over Bei­jing’s ag­gres­sive ef­forts to chal­lenge Amer­i­can tech­no­log­i­cal dom­i­nance. The U.S. charges that China is steal­ing tech­nol­ogy, un­fairly sub­si­diz­ing its own com­pa­nies and forc­ing U.S. com­pa­nies to hand over trade se­crets if they want ac­cess to the Chi­nese mar­ket.

“It’s re­ally hard to iden­tify whether this the be­gin­ning of a pro­longed con­flict or just ne­go­ti­at­ing tac­tics,” said David Dol­lar, se­nior fel­low at the Brook­ings Institutio­n and a for­mer of­fi­cial at the World Bank and U.S. Trea­sury. “I in­creas­ingly think that this is go­ing to turn into a long-term trade con­flict. We have to en­ter­tain the possibilit­y that there is no deal.”

Dol­lar points to the air­ing of Korean War movies and com­ments by Pres­i­dent Xi Jin­ping sug­gest­ing that the Chi­nese peo­ple need to steel them­selves for an­other “Long March” — a ref­er­ence to the leg­endary and ar­du­ous trek Mao Ze­dong’s Com­mu­nists made to es­cape pur­suers from China’s rul­ing Na­tion­al­ist gov­ern­ment in 1934-1935.

The world’s two big­gest economies are al­ready locked in the costli­est trade com­bat since the


The United States has im­posed 25 per­cent tar­iffs on $250 bil­lion in Chi­nese im­ports and is plan­ning to tar­get an­other $300 bil­lion — a move that would cover ev­ery­thing China ships to the United States.

China has tar­geted $110 bil­lion in U.S. prod­ucts in re­tal­i­a­tion.

China is also look­ing at other ways to pres­sure the United States.

Pres­i­dent Xi made it a point to visit a Chi­nese fac­tory this week that pro­cesses rare earths — min­er­als used in things like mo­bile phones and elec­tric cars. The un­spo­ken mes­sage: The United States needs China to sup­ply the ex­otic min­er­als.

Mean­time, the Chi­nese gov­ern­ment took steps to pro­tect tech com­pa­nies from be­com­ing col­lat­eral dam­age in the U.S.-China con­flict.

Un­der the new mea­sure, most soft­ware and in­te­grated cir­cuit com­pa­nies can skip pay­ing in­come taxes for two years and will see their tax bills cut by half for three years af­ter that, the Fi­nance Min­istry said.

Most smart­phones, tablet com­put­ers and other elec­tron­ics are as­sem­bled in China. But Chi­nese man­u­fac­tur­ers typ­i­cally use U.S., Ja­panese or Tai­wanese mi­crochips and other com­po­nents.

The United States has squeezed Chi­nese com­pa­nies by threat­en­ing to shut off sup­plies of those key com­po­nents. The Trump ad­min­is­tra­tion is­sued an or­der last week that will curb or end Chi­nese tele­com gi­ant Huawei Tech­nolo­gies Ltd.’s ac­cess to Amer­i­can chips and to Google, which pro­vides the An­droid op­er­at­ing sys­tem and ser­vices for Huawei smart­phones.

A sim­i­lar ex­port ban al­most put the Chi­nese tele­com firm ZTE Corp. out of busi­ness last year. The U.S. charged that the com­pany had vi­o­lated sanc­tions by sell­ing equip­ment to Iran and North Korea. Even­tu­ally, ZTE es­caped the ex­port ban by agree­ing to pay a $1 bil­lion fine and to re­place its man­age­ment team.

In Wash­ing­ton, mem­bers of the House Fi­nan­cial Ser­vices Com­mit­tee pressed Mnuchin Wed­nes­day on the costs of the trade war with China. Mnuchin said he’d spo­ken to Wal­mart and other firms about how to limit the ef­fect of higher tar­iffs on Amer­i­can con­sumers. “I don’t ex­pect there will be sig­nif­i­cant costs on Amer­i­can fam­i­lies,” he said.

But many Amer­i­can busi­nesses are not so san­guine.

Nearly 200 footwear re­tail­ers and brands in­clud­ing Adi­das and Shoe Car­ni­val wrote a let­ter to Trump on Mon­day, call­ing on him not to slap tar­iffs on footwear im­ported from China.

The group, the Footwear Dis­trib­u­tors and Re­tail­ers of Amer­ica, es­ti­mates that Trump’s pro­posed ac­tions will add $7 bil­lion in ad­di­tional costs for cus­tomers ev­ery year.

Can the United States and China break the im­passe?

No talks have been sched­uled, and many an­a­lysts sus­pect a break­through will re­quire an in­ter­ven­tion at the top be­fore the Group of 20 ma­jor economies meets next month in Osaka, Ja­pan.

“For a deal, there needs to be a Trump-Xi call, which would en­able a use­ful Lighthizer visit to Bei­jing,” said Derek Scis­sors, a China spe­cial­ist at the con­ser­va­tive Amer­i­can En­ter­prise In­sti­tute. “Then the two lead­ers could meet in Osaka and com­pro­mise on at least one ma­jor is­sue: rein­vig­o­rat­ing the talks.”

As­so­ci­ated Press

A man wear­ing Nike shoes uses his smart­phone near an ad­ver­tise­ment for U.S. lin­gerie maker Vic­to­ria’s Se­cret in Bei­jing on Tues­day. Chi­nese of­fi­cials may tar­get op­er­a­tions of Amer­i­can com­pa­nies in China by slow­ing cus­toms clear­ance for their goods and step­ping up reg­u­la­tory scru­tiny that can hamper op­er­a­tions.

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