Posts Tagged ‘technology’

China is winning Trump’s trade war — Zero curbs on China’s high-tech plans

May 21, 2018

It was easy to miss the U.S.-China trade statement that the White House released Saturday, right in the midst of royal wedding mania. But it’s hard to hide that China looks as if it’s winning President Trump’s trade skirmish — so far.

The statement said that, after several days of talks, the Chinese agreed to “substantially” reduce the United States’ $375 billion trade deficit with China and that the details would be worked out later. It was noticeably vague.

By Heather Long
The Washington Post

Image may contain: 2 people, people smiling, people standing and suit
President Donald Trump and China’s top trade negotiator Liu He

Notice China didn’t agree to a specific amount. On Friday, Trump’s top economic adviser, Larry Kudlow, was telling reporters that the Chinese had agreed to reduce the deficit by “at least” $200 billion.China quickly denied that, and, a day later, the official statement didn’t have a concrete number, a seeming victory for the Chinese.

What about the IP fight? The real battle against the Chinese was supposed to be over intellectual property theft, which the Trump administration says has been going on for years and costs the U.S. economy $225 billion to $600 billion a year. Trump was supposed to get the Chinese to stop stealing U.S. business secrets and technology. On this front, the statement was brief and lackluster, saying that both sides agreed to “strengthen cooperation” (diplomatic speak for not doing much) and that China would “advance relevant amendments” to its patent law. It remains to be seen whether that happens (and whether China enforces any new laws).

Treasury Secretary Steven Mnuchin told Fox News on Sunday that the U.S. was ‘putting the trade war on hold.’
Treasury Secretary Steven Mnuchin told Fox News on Sunday that the U.S. was ‘putting the trade war on hold.’ PHOTO: ANDREW CABALLERO-REYNOLDS/AGENCE FRANCE-PRESSE/GETTY IMAGES

Reaction to the announcement was mostly negative, even among people who are usually Trump allies. Dan DiMicco, a former steel CEO who has been a big supporter of Trump’s steel and aluminum tariffs, tweeted shortly after the statement came out, “Not good enough. Time to take the gloves off.” He followed that up with: “Did [the] president just blink? China and friends appear to be carrying the day.” Fox Business host Lou Dobbs summed up the situation this way: “Chinese say ‘no deal.’ ”

Sen. Marco Rubio (R-Fla.) tweeted, “Why do U.S. officials always fall for China trickery?” Wall Street Journal trade reporter Bob Davis tweeted that the big takeaway is: “Trump administration gets rolled by the Chinese.”

Here’s a rundown of the many ways China appears to have gotten the upper hand.

China’s “concessions” are things it planned to do anyway. The Chinese have one of the fastest-growing economies and middle classes in the world. Chinese factories and cities need more energy, and its people want more meat. It’s no surprise then that China said it was interested in buying more U.S. energy and agricultural products. The Trump administration is trying to cast that as a win because the United States will be able to sell more to China, but it was almost certain that the Chinese were going to buy more of that stuff anyway.

What Trump got from the Chinese is “the kind of deal that China would be able to offer any U.S. president,” said Brad Setser, a China expert at the Council on Foreign Relations. “China has to import a certain amount of energy from someone and needs to import either animal feed or meat to satisfy Chinese domestic demand.”

China has been buying about $20 billion worth of U.S. agricultural products a year and $7 billion in oil and gas, according to government data. Even if China doubled — or tripled — purchases of these items, it won’t equal anywhere near a $200 billion reduction in the trade deficit.

The United States agreed to suspend tariffs. Chinese officials sold the talks as a win for them back home, telling state-run media that the United States had agreed to “not to launch a trade war and to stop slapping tariffs against each other.” Chinese media called this the most important result of the talks.

Treasury Secretary Steven Mnuchin confirmed that the tariffs are now “on hold” when he appeared on “Fox News Sunday.”

Yes, it’s good for both sides not to be in a trade war, but the Chinese had more to lose economically from the tariffs. The Trump administration rolling back its $150 billion tariff threat against China is a good “get” for the Chinese.

China had leverage ahead of the North Korea summit. Trump wants the summit with North Korea on June 12 to go well. It would be a huge breakthrough for the United States and the world and a significant achievement for his administration. The Chinese understand Trump needs them to help make this happen, and they reportedly expected Trump to be more amenable on trade while North Korea is in play. Trump even expressed openness to rolling back restrictions on the Chinese tech firm ZTE, a surprise to many.

“A U.S.-China trade disconnect or worse at this juncture only would detract and distract from mutual progress on North Korea,” said Terry Haines, managing director of research and advisory firm Evercore ISI.

It’s unlikely that there will be new limits on Chinese investment in the United States. Another Chinese goal is to be able to invest more in the United States. Mnuchin is supposed to be working on strong curbs to Chinese investment in America, another tough measure to show the Chinese that if they won’t play fair and let U.S. companies fully operate in China, then America isn’t going to be so open to Chinese firms and money.

Monday is the deadline for Mnuchin to “report progress” on the investment barriers. Now it looks as if those limitations are on hold, too, according to a lobbyist familiar with the deliberations who isn’t authorized to speak publicly about the administration’s decision-making and spoke on the condition of anonymity.

Derek Scissors, a China expert at the right-leaning American Enterprise Institute who advised the Trump administration on China trade last year, also thinks Mnuchin won’t push this week for any further blocks on Chinese investment in the United States.

“Mnuchin never had any intention of recommending anything serious that I know,” Scissors said.

Zero curbs on China’s high-tech plans. There was little in the Saturday statement about IP protections and nothing about China altering its plans for high-tech growth and domination (President Xi Jinping’s “China 2025″ plan). When the Trump administration originally presented China with a list of demands, it included China agreeing to stop subsidizing its tech companies.

It was always unlikely that the United States would get China to alter its marquee economic growth plan, but it’s yet another reminder that the Chinese gave a few concessions on things that aren’t sacrifices for China.

China appears to have the upper hand, but this is just the beginning. This is only round one of lengthy negotiations between the two nations on trade, and it was conducted by various secretaries and advisers. Even Kudlow said Sunday that this can’t be considered a deal yet. Much could change when Trump and Xi meet face-to-face.

But so far, the Chinese are pitching Trump a “deal” that doesn’t alter much on their end. There’s hope on both sides of the aisle (and in many parts of America) that Trump will hold out for more.

Correction: An earlier version of this story listed Lou Dobbs as a Fox Business anchor. Dobbs is a host.


China agrees to buy ‘significantly’ more from the U.S., but doesn’t commit to specific amount

Mnuchin says Trump putting trade war with China ‘on hold’

Just about everything is odd about Trump’s support of Chinese firm ZTE



Treasury, USTR Send Mixed Messages Over Tariffs on Chinese Imports​ — “Our side is so confused.”

May 21, 2018

Mixed signals from officials could further complicate the Trump administration’s trade agenda

Treasury Secretary Steven Mnuchin told Fox News on Sunday that the U.S. was ‘putting the trade war on hold.’
Treasury Secretary Steven Mnuchin told Fox News on Sunday that the U.S. was ‘putting the trade war on hold.’ PHOTO: ANDREW CABALLERO-REYNOLDS/AGENCE FRANCE-PRESSE/GETTY IMAGES

WASHINGTON—The Treasury secretary and the administration’s top trade official took markedly different positions over whether the U.S. will move forward with tariffs on Chinese imports, punctuating several days of negotiations between the world’s two biggest economies with a question mark.

Several hours after Treasury Secretary Steven Mnuchin told Fox News on Sunday that the U.S. was “putting the trade war on hold” and wouldn’t assess tariffs on Beijing while the two sides talked, U.S. Trade Representative Robert Lighthizer put out a statement saying that tariffs remained an important tool to “protect our technology.”

Mr. Lighthizer didn’t say the U.S. would resort to tariffs any time soon, and Mr. Mnuchin didn’t rule out tariffs, and a U.S. trade official played down the disparity, but trade experts said the differences in tone and substance stood out. People familiar with the administration’s internal deliberations said Mr. Lighthizer was signaling that he wouldn’t accept a watered-down version of U.S. goals or tactics in the trade dispute with China.

The U.S. has threatened to levy tariffs on as much as $150 billion in Chinese imports over Beijing’s alleged pressure on U.S. companies to transfer technology to Chinese partners, and Beijing has vowed to retaliate in kind. The procedural steps to apply tariffs on the first $50 billion tranche of Chinese imports are scheduled to be completed this week.

“There is growing frustration with Secretary Mnuchin getting ahead of both the president and the trade team on the direction of the Chinese negotiations,” said a person familiar with the China negotiations. “His eagerness to do a deal significantly undercuts the U.S. negotiating position.”

In effect, Mr. Mnuchin’s statement would put off the threat of tariffs until at least after the June 12 summit between President Donald Trump and Kim Jong Un, said people familiar with the administration’s deliberations. China is crucial to any possible deal with North Korea to give up its nuclear weapons.

The battling statements come one day after the U.S. and China ended talks in Washington to reduce trade tensions. The talks were led by Mr. Mnuchin, but Mr. Lighthizer and Commerce Secretary Wilbur Ross were also on the U.S. negotiating team.

After two days of negotiations, the U.S. failed to get China to commit to reducing the U.S. trade deficit with China by at least $200 billion, a top U.S. goal. Mr. Mnuchin said on “Fox News Sunday” that “we have an agreement with China that they will substantially agree” to trade deficit reduction, although the statement put out by the two sides after the talks contained no specific numerical targets.

Others in the administration, including Mr. Lighthizer and White House trade adviser Peter Navarro, have been arguing that the U.S. must insist on more fundamental changes in the Chinese economic model and shouldn’t be satisfied with increased purchases along with some modest changes in Chinese trade and investment practices.

“Getting China to open its market to more U.S. exports is significant, but the far more important issues revolve around forced technology transfers, cyber theft and the protection of our innovation,” said Mr. Lighthizer in his statement.

A U.S. trade official said that Mr. Lighthizer and Mr. Mnuchin are “on the same page.” Mr. Lighthizer informed Mr. Mnuchin and President Trump that he was going to put out the statement, the official said. He also noted that Mr. Mnuchin said that tariffs could be put into effect if China doesn’t follow through on commitments.

“Secretary Mnuchin led the trade delegation but worked closely with others in the delegation,” said a second senior administration official. He added that Messrs. Lighthizer and Mnuchin worked together on Mr. Lighthizer’s Sunday statement.

Derek Scissors, a China scholar at the American Enterprise Institute who sometimes consults with the Trump administration on trade, said the administration is divided into two camps on China trade. What he called the “status quo” camp is led by Mr. Mnuchin and National Economic Council Director Lawrence Kudlow. Worried about market and business reaction to a trade war, this group seeks a fast deal involving more Chinese purchases.

The “China-as-predator” camp, led by Messrs. Lighthizer, Navarro and some national security officials, is looking for more significant change and is more willing to resort to trade sanctions even if they disrupt the market, he said.

Mr. Mnuchin faces an immediate deadline. The president asked the Treasury to report to him by Monday on “progress” it is making in devising rules that would restrict Chinese investment in the U.S. if Beijing doesn’t ease limits on U.S. companies operating there.

Treasury has been looking at rules that would bar Chinese firms from acquiring any U.S. technology and is wrestling with a variety of challenges in devising the rules. They include how to define a Chinese firm, as well as what kind of acquisitions or technologies should be blocked.

Treasury was widely expected by trade experts in Washington to release an investment proposal Monday. But a senior administration official said that, at most, Treasury would release a statement about what Mr. Mnuchin reports to the president on the status of the proposal. By declaring a temporary truce in the trade war, Mr. Mnuchin “is saying it’s all on hold,” said Mr. Scissors.

C. Donald Johnson, a former USTR negotiator and trade lawyer in the Clinton administration, said conflicting statements from Washington’s negotiators don’t help U.S. negotiations.

“I know where [Chinese President] Xi Jinping and Liu He are coming from,” said Mr. Johnson. “But our side is so confused.”

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In addition to discussions over trade issues, the U.S. and China have been negotiating over a deal for the U.S. to ease restrictions on ZTE Corp., the Chinese telecom company that has struggled since the U.S. punished it for violating sanctions against North Korea and Iran, and not living up to promises to the Commerce Department to make changes in management.

Commerce has forbidden U.S. companies from supplying parts to ZTE pending an official review. Mr. Mnuchin said he discussed ZTE with the Chinese during trade talks but the matter is “an enforcement issue, not a trade issue.”

China’s top diplomat, Foreign Minister Wang Yi, is due in Washington this coming week and will continue the discussions on ZTE, said people briefed on the talks.

Corrections & Amplifications 
China has a $375 billion annual trade surplus with the U.S. An earlier version of this article incorrectly stated that U.S. had the trade surplus with China. (May 20)

Write to Bob Davis at and Josh Zumbrun at

Appeared in the May 21, 2018, print edition as ‘U.S. Sends Mixed Messages On China.’

U.S.-China Trade Truce May Be Fleeting as Tensions Linger — “Real structural change is necessary. Nothing less than the future of tens of millions of American jobs is at stake.”

May 21, 2018

The newly-declared economic truce between the U.S. and China will prove temporary if the world’s two largest economies fail to deliver on vague commitments to re-balance trade.

“We’re putting the trade war on hold,” Treasury Secretary Steven Mnuchin said Sunday. “Right now, we have agreed to put the tariffs on hold while we execute the framework.”

Image may contain: 2 people, people smiling, people standing and suit
President Donald Trump and China’s top trade negotiator Liu He

President Donald Trump had threatened to slap tariffs on up to $150 billion in Chinese imports, while Beijing vowed to respond in kind. For now, Mnuchin’s cease-fire declaration will soothe the nerves of investors worried that the world’s two biggest economies were on the verge of an all-out trade conflict.

The U.S. and China released a joint statement on Saturday, after two days of meetings in Washington between Chinese Vice Premier Liu He and senior American officials, including Trump.

The statement was “little more than a brief de-escalation of tensions,” said Eswar Prasad, a trade policy professor at Cornell University and former head of the IMF’s China unit. “The fundamental differences on trade and other economic issues remain unresolved.”

Asian stocks gained Monday as U.S. equity futures jumped in the wake of news that the Sino-American trade war is on hold for now. Treasury yields nudged higher, taking the dollar with them.

Read More on the Trade Talks:

Time to let win-win cooperation define China-U.S. trade ties: Xinhua
Investors Cheer U.S.-China Trade Truce as Stock Futures Rally
China-U.S. Trade Relations Heading Back to 1990s: Credit Suisse
Soybeans in Chicago Trading Climb on U.S.-China Trade Truce

Issues Unresolved

China and the U.S. agreed to “substantially” reduce the U.S. trade deficit in goods with China. Beijing promised to “significantly” increase purchases of U.S. goods and services. But there was no dollar figure attached, despite assurances by the White House that Beijing would cave to its demand for a $200-billion annual reduction in the goods shortfall.

Trump has an important strategic reason for removing the tariff threat against China: he needs Beijing’s cooperation as he prepares for an historic summit with North Korean leader Kim Jong Un in Singapore on June 12. It’s hard to imagine a peace deal with North Korea without the involvement of China, Kim’s most important political and economic ally.

China Rhetoric

Yet if trade talks with China fizzle, the president may soon feel the pressure to clamp down again, especially with midterm congressional elections looming in November. In their efforts to save the party’s majorities in the House and Senate, Republicans will lean hard on Trump’s brand, which he built on promises to help the working class in states like Ohio and Pennsylvania, where Trump’s fiery rhetoric on China resonated with voters.

“As this process continues, the United States may use all of its legal tools to protect our technology through tariffs, investment restrictions and export regulations,” U.S. Trade Representative Robert Lighthizer said in a statement Sunday. “Real structural change is necessary. Nothing less than the future of tens of millions of American jobs is at stake.”

Trump remains preoccupied with a singular measure — the U.S. trade deficit — that will be difficult to shrink in the short term. It’s unclear how Beijing will ramp up buying of U.S. products, even though the one-party state exerts greater control than most governments over the spending decisions of companies.

Even if China dramatically increases its buying of American goods, that wouldn’t reduce American consumers’ appetite for imports from China. Republican tax cuts and spending increases are set to inject fiscal stimulus into the U.S. economy that will stoke demand for foreign-made products.

Economists say it’ll be tough to reduce the trade imbalance between the two nations without deep reforms that change the way they save and invest. China has shown little inclination toward a sudden opening of its economy, which relies heavily on state intervention and exports for growth.

It’s “difficult to contemplate” how the two countries could cut their trade imbalance by $200 billion, said Victor Shih, a professor at the University of California in San Diego who studies China’s politics and finance.

“Even with a drastic reallocation of Chinese imports of energy, raw materials and airplanes in favor of the U.S., the bilateral trade deficit may reduce by $100 billion,” said Shih. “A $200 billion reduction would mean a drastic reduction in Chinese exports to the U.S. and a dramatic restructuring of the supply chain.”

Deal or No Deal: Can China Shrink U.S. Deficit by $200 Billion?

China’s state media put a positive spin on the outcome of the talks, citing an interview with Liu in Washington on Saturday in which he said the two sides “agreed not to launch a trade war and to stop slapping tariffs against each other,” Xinhua News Agency reported. The U.S. will be able to narrow its trade deficit, while China can ensure a steady supply of goods it needs to develop and improve lives, the Global Times wrote in an editorial Sunday.

Export Curbs

It doesn’t appear the White House convinced China to accept export quotas, as Japan did in the 1980s when President Ronald Reagan carried out a strategy of “managed trade.” The U.S. has forced allies such as South Korea to accept steel quotas, and it’s putting pressure on others, including the European Union, to do the same for their metals sales. Avoiding similar constraints would be a victory for Chinese President Xi Jinping.

The U.S. has also made little progress forcing China to respect American intellectual property — the issue that caused the U.S. to threaten tariffs in the first place. In March, Trump’s officials concluded that Beijing flouts U.S. IP rules in a variety of ways, including by forcing American firms to transfer technology.

During hearings in Washington last week on the proposed tariffs, U.S. companies warned against the risks of imposing duties on Chinese imports. But many agreed the U.S. should take bolder steps to stop China from violating IP rights.

Patent Law

This weekend’s joint statement said only that both sides “attach paramount importance to intellectual-property protections,” and agreed to cooperate more. China will change its laws and regulations in this area, including its patent law, according to the statement.

The statement didn’t mention additional U.S. demands, including a halt to subsidies and other government support for the Made in China 2025 plan that targets strategic industries from robotics to new-energy vehicles.

There also was no mention of Chinese telecommunications maker ZTE Corp., facing a death sentence after it was cut off from American suppliers for allegedly lying to the U.S. government after flouting sanctions. Trump raised eyebrows last week when he instructed officials to extend a lifeline to the company.

“The statement was very short and general, and lacked specifics,” said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong and a former International Monetary Fund researcher. “It touched only lightly on China’s technology policy and did not refer to its industrial policy, which is highly controversial in the U.S. and elsewhere, underscoring that the broader tension is not resolved.”

— With assistance by Andrew Mayeda, Kevin Hamlin, Xiaoqing Pi, and Miao Han

Did China Just Bribe Trump to Undermine National Security?

May 18, 2018

Did the president of the United States just betray the nation’s security in return for a bribe from the Chinese government?

Don’t say that this suggestion is ridiculous: Given everything we know about Donald Trump, it’s well within the bounds of possibility, even plausibility.

Don’t say there’s no proof: We’re not talking about a court of law, where the accused are presumed innocent until proved guilty. Where the behavior of high officials is concerned, the standard is very nearly the opposite: They’re supposed to avoid situations in which there is even a hint that their actions might be motivated by personal gain.

By Paul Krugman
The New York Times

President Trump announced this week that he was working with President Xi of China to help save ZTE.CreditJohannes Eisele/Agence France-Presse — Getty Images

Oh, and don’t say that it doesn’t matter one way or the other, because the Republicans who control Congress won’t do anything about it. That in itself is a key part of the story: An entire political party — a party that has historically wrapped itself in the flag and questioned the patriotism of its opponents — has become entirely complaisant in the possibility of raw corruption, even if it involves payoffs from hostile foreign powers.

The story so far: In the past few years ZTE, a Chinese electronics company that, among other things, makes cheap smartphones, has gotten into repeated trouble with the U.S. government. Many of its products contain U.S. technology — technology that, by law, must not be exported to embargoed nations, including North Korea and Iran. But ZTE was circumventing the ban.

Initially, the company was fined $1.2 billion. Then, when it became clear that the company had rewarded rather than punished the executives involved, the Commerce Department forbade U.S. technology companies from selling components to ZTE for the next seven years.

And two weeks ago the Pentagon banned sales of ZTE phones on military bases, following warnings from intelligence agencies that the Chinese government may be using the company’s products to conduct espionage.

All of which made it very strange indeed to see Trump suddenly declare that he was working with President Xi of China to help save ZTE — “Too many jobs in China lost” — and that he was ordering the Commerce Department to make it happen.

It’s possible that Trump was just trying to offer an olive branch amid what looks like a possible trade war. But why choose such a flagrant example of Chinese misbehavior? Which was why many eyes turned to Indonesia, where a Chinese state-owned company just announced a big investmentin a project in which the Trump Organization has a substantial stake.

That investment, by the way, is part of the Belt and Road project, a multinational infrastructure initiative China is using to reinforce its economic centrality — and geopolitical influence — across Eurasia. Meanwhile, whatever happened to that Trump infrastructure plan?

Back to ZTE: Was there a quid pro quo? We may never know. But this wasn’t the first time the Trump administration made a peculiar foreign policy move that seems associated with Trump family business interests. Last year the administration, bizarrely, backed a Saudi blockade of Qatar, a Middle Eastern nation that also happens to be the site of a major U.S. military base. Why? Well, the move came shortly after the Qataris refused to invest $500 million in 666 Fifth Avenue, a troubled property owned by the family of Jared Kushner, the president’s son-in-law.

Qatar may be about to make a deal on 666 Fifth Avenue, a troubled property owned by the family of Jared Kushner, the president’s son-in-law.Credit  Karsten Moran for The New York Times

And now it looks as if Qatar may be about to make a deal on 666 Fifth Avenue after all. I wonder why?

Step back from the details and consider the general picture. High officials have the power to reward or punish both businesses and other governments, so that undue influence is always a problem, even if it takes the form of campaign contributions or indirect financial rewards via the revolving door.

But the problem becomes vastly worse if interested parties can simply funnel money to officials through their business holdings — and Trump and his family, by failing to divest from their international business dealings, have basically hung a sign out declaring themselves open to bribery (and also set the standard for the rest of the administration).

And the problem of undue influence is especially severe when it comes to authoritarian foreign governments. Democracies have ethical rules of their own: Justin Trudeau would be in big trouble if Canada were caught funneling money to the Trump Organization. Corporations can be shamed or sued. But if Xi Jinping or Vladimir Putin make payoffs to U.S. politicians, who’s going to stop them?

The main answer is supposed to be congressional oversight, which used to mean something. If there had been even a whiff of foreign payoffs to, say, Gerald Ford or Jimmy Carter, there would have been bipartisan demands for an investigation — and a high likelihood of impeachment.

But today’s Republicans have made it clear that they won’t hold Trump accountable for anything, even if it borders on treason.

All of which is to say that Trump’s corruption is only a symptom of a bigger problem: a G.O.P. that will do anything, even betray the nation, in its pursuit of partisan advantage.

Follow me on Twitter (@PaulKrugman).

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A version of this article appears in print on , on Page A27 of the New York edition with the headline: Belts, Roads, Emoluments, Espionage.

On Trade, the U.S. and China Consider the Unthinkable: Breaking Up $700 Billion in U.S.-China Trade

May 17, 2018

The economic relationship between China and the United States has defined the modern era. It helped lift hundreds of millions of people in China out of poverty. It gave affordable iPhones and other gadgets to American consumers, handed big profits to American companies and delivered 1.3 billion hungry customers to American farmers.

Now some people in both countries want to tear it apart.

Image may contain: 1 person, suit

As a top Chinese economic policymaker meets with the Trump administration this week in hopes of heading off a potential trade war, some officials in both countries are planning for a time when the world’s two biggest economies do not need each other quite so much any more. They are seeking nothing less than a fundamental rethinking of a trade relationship that encompasses more than $700 billion in goods and services that flow between the countries every year.

Full disengagement is impossible, leaders on both sides acknowledge. But the plans being developed in Beijing and Washington anticipate a time when the economic engines of China and the United States are not so closely linked, particularly in high-tech industries.

“In the next step of tackling technology, we must cast aside illusions and rely on ourselves,” President Xi Jinping of China said last month after visiting a new computer microchip factory in the country’s center.

Semiconductor research in China. A plan known as Made in China 2025 is built around the idea of developing the country’s high-tech industries. Credit Kim Kyung Hoon/Reuters

Beijing has Made in China 2025, a plan that calls for the country to become largely self-sufficient and globally competitive in 10 advanced manufacturing sectors now dominated by the West. These include commercial aircraft, robotics, 5G mobile phone communications and computer microchips.

China currently depends on the United States and its allies for those elements of a high-tech future. Washington showed that last month with its move to deny American-made components to ZTE, bringing the Chinese company’s factories to a halt.

But Washington is also worried about China’s efforts to build homegrown champions. The Trump administration blocked the chip maker Broadcom’s proposed acquisition of Qualcomm, a rival, this year, over concerns that the deal would give China’s Huawei an advantage in 5G technology.

The United States has outlined its own strategy of sorts to wean itself from China. Should the Trump administration enact its threated tariffs on $150 billion in Chinese-made goods, the thinking goes, American corporations would begin to reduce their reliance on Chinese-made small components, machinery and other dull-but-essential parts in the global supply chain.

President Trump’s proposed tariffs are partly targeted at industries where customers would have an easier time switching to a supplier based in either the United States or a friendly ally like Germany, Japan, Taiwan, South Korea, Mexico or India. In most of the initial product categories the administration has identified for tariffs, less than half of the goods imported by American companies come from China.

Levi’s has a plan for protecting itself should tensions escalate further. If the Trump administration imposes a levy on clothes made in China, the company could sell American consumers jeans made in Vietnam, Cambodia or one of the three dozen or so other countries where it has suppliers.

“It’s a shell game,” said Chip Bergh, the chief executive of Levi’s. He added, “We’ll probably still be making a lot of product in China but it just won’t be coming to the U.S.” He noted that jeans made in China could be sold to consumers in Mexico instead.

The tariffs are also geared toward the products that will shape the future. China exports almost nothing now in some categories that the Trump administration carefully included in its list for planned tariffs, like electric cars and satellites. But China’s leaders hope that with government nurturing, such industries will soon become big exporters.

American laws and World Trade Organization rules allow countries to impose tariffs on subsidized goods from overseas that harm domestic industries. But the Trump administration is trying to pre-empt Chinese exports of subsidized high-tech goods to the United States by imposing tariffs in advance.

A Hongqui electric concept car at the China Auto Show in Beijing in April. The electric car category is among the areas in which China now exports almost no products that would be affected by the Trump administration’s tariff plans.CreditAndy Wong/Associated Press

United States trade officials are counting on tariffs to have long-lasting effects. Decades-old levies on imported pickup trucks, for example, help explain why essentially all pickups sold in the United States — even those made by Japanese companies like Toyota — are made in America.

American trade policy “will respond to hostile economic competitors, will recognize the importance of technology, and will seek opportunities to work with other countries that share our goals,” Robert E. Lighthizer, the United States trade representative, recently told the Senate Finance Committee.

The focus on disengagement reflect broader political realities. China is rapidly building a world-class navy; conducting military exercises in Africa and off the shores of northern Europe; and developing some of the world’s most advanced stealth fighter planes and ballistic missiles. The military muscle-flexing has caused alarm in Washington and directly influenced trade policy.

In China, leaders were alarmed five years ago by the former National Security Agency contractor Edward Snowden’s disclosures that American intelligence services had involved technology companies in the United States in its spying on China and its allies. China also faces rising labor costs — meaning cheap manufacturing will no longer provide as many jobs — and has a rising class of educated young people for whom it needs to find well-paying, high-tech jobs. While many American and European companies see Made in China 2025 as building up government-supported rivals, Chinese leaders see the plan as essential to the country’s future prosperity.

ZTE’s punishment, in particular, exposed big gaps in China’s economic prowess.

“It seems likely that the current trade dispute, and the ZTE sanctions in particular, will spur the Chinese government to double down on its economic autarky model, where they seek self-sufficiency in a wider array of technology-based products,” said Robert D. Atkinson, the president of the Information Technology and Innovation Foundation, a Washington policy research group backed partly by Western technology companies.

The Chinese and American plans both face long odds.

At first glance, China’s might seem to have a better chance of success. The country’s state-controlled banking system can steer huge loans at very low interest rates to any industry the central government chooses. Local governments have also been urged to promote targeted industries, which they can do through subsidies like providing downtown land at virtually no cost. Semiconductor factories are now rising in major cities all over China, posing a formidable challenge to the industry’s global players.

But China has a long way to go. It trails the United States significantly in crucial areas like microchips, software design and high-end precision manufacturing. As one example, semiconductors designed in the United States make up half the chips China buys every year. American companies can already design and will soon be manufacturing semiconductors with circuits just one-fifth of the size of Chinese circuits.

China is rapidly building a world-class navy; conducting military exercises in Africa and off the shores of northern Europe; and developing some of the world’s most advanced stealth fighter planes and ballistic missiles.Credit China Stringer Network/Reuters

But the United States faces its own challenges. Washington could find it extremely difficult to lure back factories that moved to China over the years. Chinese workers may be more expensive to employ than they once were, but they are still paid a quarter or less than American workers. China has also become a vast new market in its own right — one that companies are loath to leave — and has invested huge sums in highways, bullet trains and other systems that make connecting buyers and sellers cheap and easy.

And some industries simply may never come back. For example, Mr. Trump’s proposed tariffs will not touch the consumer electronics industry, in an acknowledgment that the business of making iPhones and Xboxes will stay in China for the foreseeable future.

Foxconn, a Taiwan company that makes iPhones and other devices, has begun building a manufacturing complex in India and is preparing to build one in the United States, too. Devendra Fadnavis, the chief minister of Maharashtra state in India, which includes Mumbai, said in an interview that he had recently met with a group of chief executives of American companies who also wanted to place big bets on new factories in the country.

“They were very bullish on India,” Mr. Fadnavis said, “and now I’m getting more and more inquiries from the U.S.”

But politics, not economics, have played a major role in those decisions, and progress has been slow. Despite a plan to build factories employing 50,000 people in the western Indian state of Maharashtra by 2020, Foxconn now has 16,500 workers in all of India. In China, it has one million.

“We are continuing to invest in expanding our presence and capabilities in locations throughout China,” Foxconn said in a statement.

Jie Zhao, a public policy specialist at Fudan University, predicted that increased economic self-reliance in the United States and China would not come quickly, but that it may lie ahead anyway.

“Neither China nor the U.S. can eliminate the economic interdependence of each other at this moment in time,” she said. “But reducing their dependence could be an option for getting ahead in the technological competition and world-power reorganization.”

Follow Keith Bradsher on Twitter: @KeithBradsher.

Natalie Kitroeff contributed reporting from New York

A version of this article appears in print on , on Page B1 of the New York edition with the headline: Trade Giants See a Future With Few Ties

US team divided as trade talks with China begin

May 17, 2018

Beijing is hoping for a deal on ZTE but Trump’s olive branch has been criticised

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Treasury Secretary Steven Mnuchin — Steven Mnuchin is among senior officials seen as eager to strike a deal with China © AP

Shawn Donnan in Washington and Tom Mitchell in Beijing

China and the US are set to begin a second round of high-level talks aimed at averting a trade war, amid questions over President Donald Trump’s dealmaking acumen and signs of his administration’s internal divide over how to deal with Beijing.

Chinese officials are hopeful that Liu He, President Xi Jinping’s top economic adviser, can leave Washington this weekend with a deal that would spare ZTE, the Chinese telecoms equipment manufacturer, from a corporate death sentence.

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On Thursday, just hours before formal talks were due to begin in Washington, China’s Commerce ministry said Beijing “did not want to see Sino-US frictions escalate” but would not trade its “core interests” in return for a quick settlement.

While Chinese government officials have indicated their willingness to reduce China’s $337bn trade surplus with the US, they are reluctant to make compromises related to their controversial Made in China 2025 industrial policy and other “systemic issues”.

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Liu He

ZTE suspended its shares from trading in April and said it had halted operations earlier this month as a result of the US ban on it sourcing vital parts from American suppliers. The ban was imposed by the US Department of Commerce after ZTE allegedly violated the terms of an earlier settlement related to sales of restricted equipment to Iran and North Korea.

But after flagging his support for measures that would save ZTE on Twitter last weekend, Mr Trump has been forced to defend himself against both Republicans and Democrats in Congress who criticised his U-turn.

ZTE has admitted violating US sanctions on Iran and North Korea and has long been a focus of suspicion for US intelligence agencies. In return for a lesser penalty against ZTE, Chinese officials may offer regulatory clearance of Qualcomm’s proposed $44bn takeover of NXP and agree not to target US agricultural exports with punitive tariffs.

In a separate development on Tuesday, the same day that Mr Liu arrived in Washington, Arizona-based Microchip Technology said Chinese competition regulators had signed off on its $8.4bn purchase of Microsemi, another US tech company.

Thursday’s trade talks will begin against a backdrop of continuing divisions between senior officials eager to strike a deal, such as Treasury secretary Steven Mnuchin, and China hawks, such as White House trade adviser Peter Navarro, according to people familiar with the administration’s internal discussions.

The White House on Wednesday initially said Mr Mnuchin, Commerce secretary Wilbur Ross and US trade representative Robert Lighthizer would lead Thursday’s discussions with Mr Liu and his delegation.

It only later added that Mr Navarro and National Economic Council chair Larry Kudlow, another vocal critic of China’s trade policies, would join them.

People briefed on an initial round of negotiations in Beijing earlier this month said that Mr Mnuchin and Mr Navarro clashed during those talks over a one-on-one meeting scheduled between the Treasury secretary and Mr Liu with Mr Navarro objecting to being left out.

One person briefed on the first round of talks in Beijing said Mr Navarro made it clear that he was “aggressively opposed” to a suggestion that Mr Mnuchin meet individually with Mr Liu.

But the person added that it was not clear if the Chinese registered the angry exchange as the Americans were huddled on the other side of the room. “Peter has a hot temper,” added a second person familiar with the incident.

The clash does not seem to have diminished Mr Mnuchin’s desire to put his stamp on the discussions with Beijing or China’s appetite for treating him as their lead interlocutor.

According to a copy of China’s official schedule for Thursday’s meetings seen by the Financial Times, Mr Liu, who met with congressional leaders on Wednesday, is due to hold additional one-on-one meetings with Mr Mnuchin and also join him for a private dinner.

A Treasury spokesman did not immediately respond to a request for comment. But Chinese officials complained before the Beijing talks that they did not know whom to engage with after Mr Trump decided to send seven senior officials.

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Trump Shifts From Trade War Threats to Concessions in Rebuff to Hard-Liners

May 15, 2018

President Trump’s recent threat to impose tariffs on as much as $150 billion worth of Chinese goods appeared to be the first volley in what looked like a full-scale trade war with the nation’s greatest economic adversary. Now, suddenly, Mr. Trump seems ready to make peace.

To alleviate trade tensions, Mr. Trump is considering easing up on a major Chinese telecommunications company, ZTE, in exchange for China agreeing to buy more American products and lifting its own crippling restrictions on American agriculture, people familiar with the deliberations said.

The United States government threatened the continued existence of ZTE as a business last month, when the Commerce Department ordered a seven-year halt in American shipments of computer microchips and software that lie at the heart of most of ZTE’s gear. Credit Johannes Eisele/Agence France-Presse — Getty Images

The shift is an abrupt reversal that reflects another twist in the pitched battle inside the White House between the economic nationalists, who channel Mr. Trump’s protectionist instincts, and more mainstream advisers, who worry about the effects of hard-line policies on the stock market and long-term economic growth.

While the nationalists had recently seemed ascendant — pushing Mr. Trump toward a showdown with the Chinese over steel exports and their co-opting of American technology — a deal on ZTE, and potentially a range of other trade actions, would represent a victory for the mainstream contingent, led by Treasury Secretary Steven Mnuchin.

Mr. Mnuchin has taken the lead role in trying to head off potentially harmful tariffs and investment restrictions on China and has succeeded, at least for now, in persuading Mr. Trump to adopt a more conciliatory approach than the president’s more hard-line advisers have advocated, according to people familiar with the deliberations.

An agreement on ZTE, which administration officials said could be struck with a visiting Chinese vice premier, Liu He, later this week, would remove a major source of tension between the United States and China at a sensitive moment: In just a few weeks, Mr. Trump is scheduled to meet the North Korean leader, Kim Jong-un, at a landmark summit meeting in Singapore.

Read the rest:


Asian markets down as attention turns back to trade talks

May 15, 2018

Asian markets fell on Tuesday as trade moves back into view with China and the US holding more high-level talks this week, while oil prices edged higher as tensions in the Middle East simmer.

© AFP | Chinese Vice Premier Liu He is due in Washington for fresh talks aimed at heading off a trade war with the United States


A recent run-up in equities over the past week has also led to profit-taking with Hong Kong turning lower after six straight days of gains.

US markets rose again as Chinese Vice Premier Liu He — President Xi Jinping’s right-hand man on economic issues — headed to Washington on Tuesday for a new round of talks aimed at heading off a trade war between the economic giants.

There are hopes the two sides can hammer out an agreement to end a spat that has seen both sides threaten tariffs on billions of dollars of goods.

Donald Trump’s call to help get Chinese telecom equipment maker ZTE “back into business fast” soothed nerves, while Commerce Secretary Wilbur Ross said Monday he was exploring “alternative remedies” for the firm, which was in April banned from buying crucial US technology for seven years.

“China is reportedly close to removing tariffs on agricultural products in exchange for relief for ZTE,” said Stephen Innes, head of Asia-Pacific trade at OANDA. “It helps explain why President Trump said he’d work with President Xi on this company.”

The talks come as US officials try to reach agreements with Canada and Mexico on revising their three-way trade pact, while EU steel tariff exemptions are due to end on June 1.

– ‘Hornet’s nest’ –

Hong Kong was 0.8 percent lower after racking up gains of more than five percent over the previous six sessions, while Tokyo ended the morning slightly down.

Shanghai was marginally down, while Sydney and Singapore each shed 0.4 percent, Seoul gave up 0.6 percent and Taipei dipped 0.2 percent.

However, there were gains in Manila and Kuala Lumpur.

Concerns about the already tinderbox Middle East helped put upward pressure on oil prices, with deadly clashes in Gaza during the opening of the US embassy in Jerusalem coming less than a week after Trump ripped up the Iran nuclear deal.

“In general, the market is wholly focused on the hornet’s nest in the Middle East that is an accident waiting to happen,” Innes added.

Both main crude contracts are are at highs not seen since November 2014, with economic uncertainty in major producer Venezuela also playing a key role.

The increase in oil prices is helping fan inflation expectations in the United States, which has given fuel to talk that the Federal Reserve will lift interest rates three more times this year

While the dollar was flat against its main peers it was sharply up against most high-yielding currencies including the South Korean won, Mexican peso and Indonesian rupiah.

– Key figures around 0300 GMT –

Tokyo – Nikkei 225: FLAT at 22,862.79 (break)

Hong Kong – Hang Seng: DOWN 0.8 percent at 31,292.54

Shanghai – Composite: FLAT at 3,173.77

Euro/dollar: UP at $1.1934 from $1.1931 at 2100 GMT

Pound/dollar: UP at $1.3565 from $1.3556

Dollar/yen: UP at 109.75 yen from 109.65 yen

Oil – West Texas Intermediate: UP 11 cents at $71.07

Oil – Brent North Sea: UP 15 cents at $78.38 per barrel

New York – Dow: UP 0.3 percent at 24,899.41 (close)

London – FTSE 100: DOWN 0.2 percent at 7,710.98 (close)

U.S., China Discussing Deal on ZTE, Agricultural Tariffs

May 14, 2018

Agreement would also ease roadblocks in China for U.S. semiconductor firm Qualcomm

A ZTE building in Beijing.

The U.S. and China are closing in on a deal that would give China’s ZTE Corp. a reprieve from potentially crippling U.S. sanctions in exchange for Beijing removing tariffs on billions of dollars of U.S. agricultural products, said people in both countries briefed on the deal.

The negotiations would also ease roadblocks in China faced by a U.S. semiconductor company Qualcomm Inc., whose proposed acquisition of NXP Semiconductors NV of the Netherlands has been held up by Beijing. China’s Commerce Ministry has pledged to immediately restart its review of the acquisition, a person close to the agency said. The ministry has held up a number of multibillion-dollar cross-border deals being pursued by U.S. companies over the past few months.

ZTE is a Shenzen-based telecommunication-equipment producer that has been hamstrung by a U.S. ban on component sales to the firm.

A deal isn’t completed and could fall apart as discussions continue, particularly since the U.S. side is sharply divided over how to deal with China. On Sunday, President Donald Trump said in a tweet that he was working with Chinese President Xi Jinping to get ZTE “a way to get back into business, fast. Too many jobs in China lost.” He said the Commerce Department has been instructed to “get it done!”

The Tech Arms Race Driving the U.S.-China Trade Dispute

“Made in China 2025” is Beijing’s industrial plan to dominate high-tech industries including robotics, aerospace and computer chips. The Trump administration argues China is using the plan to give its tech companies unfair advantage over foreign rivals. But what is it exactly?

The tweet took many in Mr. Trump’s inner circle by surprise, said people involved in the discussions, and wasn’t preceded by interagency discussions on the policy. Treasury Secretary Steven Mnuchin, who has been leading discussions recently with Chinese officials in Washington, has been the key player in the ZTE deal discussions, said people involved in U.S. talks with China.

Under the deal being discussed, the U.S. would relax last month’s order banning American companies from selling components to ZTE, which has long been viewed as a Chinese national champion for its effort to take a global lead in establishing 5G mobile internet networks. That Commerce Department ruling, based on allegations that ZTE didn’t comply with a previous settlement over illicit sates to Iran, would cripple not only the company itself but also other state-controlled Chinese firms including China’s three large telecom carriers, Beijing officials have said.

Donald J. Trump


President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!

In return for the potential relief on ZTE, the people say, China would agree to hold back tariffs on a variety of U.S. agricultural products it announced in early April as retaliation for U.S. tariffs on Chinese steel and aluminum exports. The U.S. products targeted include ginseng and pork.

China would also ease some nontariff restrictions on American farm products as part of the potential pact, according to the people. For instance, since late last year, China has tightened quality testing for U.S. soybeans, resulting in the crop getting held up at Chinese ports.

The Trump administration worries that a backlash among U.S. farmers to tariffs could endanger Republican efforts to keep control of the House and Senate in midterm elections.

A deal would be a kind of confidence-building exercise as China’s chief economic envoy, Liu He, is expected to arrive in Washington on Tuesday for talks through the end of the week. The two sides hope to put together a preliminary deal resolving their trade fights, which have roiled world markets.

After Mr. Trump’s tweet on Sunday, U.S. investment firm Rangeley Capital noticed an almost instantaneous change in Chinese regulators’ attitude about the proposed merger between Qualcomm and NXP Semiconductors. Chinese regulators previously had held up approval of the deal in response to growing trade tensions, including the U.S. action against ZTE.

“All of a sudden it was a tweet the president put out on ZTE,” said Rangeley partner Chris DeMuth Jr. “And then [the Chinese regulator] started up the review again.” Rangeley is an investor in NXP.

Disputes between the world’s two largest economies include U.S. tariffs on Chinese steel and aluminum exports, U.S. allegations that China forces American companies in China to transfer technology to their Chinese partners and U.S. accusations that ZTE conducted illicit sales to North Korea and Iran.

More broadly the U.S. wants China to reduce the $375 billion U.S. trade deficit in goods with China and increase imports of U.S. products. A U.S. proposal in early May called on China slash that deficit by at least $200 billion by the end of 2020, a number China rejected. Since then the two sides have been talking about how to reduce the gap through increased purchases of U.S. goods and services.

The negotiations are complicated by mistrust on both sides. The U.S. wants to make sure that any concessions the Chinese make can be verified and aren’t followed by new barriers that disadvantage U.S. companies. The Chinese want to be certain that a settlement with the U.S. won’t be followed in a year or two by another broad-based attack on Chinese economic practices.

The two sides have been at loggerheads for months, trading threats of tariffs and other sanctions. One big change has been the prospect of a deal between the U.S. and North Korea to eliminate North Korea’s nuclear weapons. China’s aid is crucial for that deal to be successful.

Complicating matters, the U.S. side is bitterly divided between Mr. Mnuchin and others in the administration. U.S. Trade Representative Robert Lighthizer and White House trade adviser Peter Navarro want a tougher U.S. line against China and deep changes in Chinese practices, including the elimination of subsidies that help Chinese companies compete internationally. Forcing those changes could require the U.S. to go through with threats and levy tariffs on as much as $150 billion of Chinese imports, moves that would disrupt the relationship and could sink markets.

The unfolding deal is already kicking up criticism from trade allies of the administration. “It’s outrageous,” said American Enterprise Institute China scholar Derek Scissors. “We are giving up on punishing ZTE for the Chinese restoring the trade status quo.”

Mr. Scissors, who has consulted with the Trump administration on China policy said, the prospective deal “shows we have nothing like the resolve necessary to take on the Chinese.”

The Chinese were more hopeful about the outcome. “The two sides will work together for positive and constructive outcomes for the upcoming consultations,” Lu Kang, China’s Foreign Ministry spokesman, said at a regular briefing Monday. Mr. Lu, who didn’t elaborate, said Mr. Liu will be in Washington until Saturday.

Write to Lingling Wei at and Bob Davis at

Trump, Xi Ease Trade Tensions With ZTE, Qualcomm Reversals

May 14, 2018
Chinese vice premier flying to D.C. on Tuesday for trade talks — Trump offered lifeline to Chinese telecom equipment firm
Liu He.  Photographer: Qilai Shen/Bloomberg

The U.S. and China signaled a desire to avoid a costly trade war after President Donald Trump offered a lifeline to beleaguered telecom equipment maker ZTE Corp. and China’s Xi Jinping dispatched his top economic adviser to Washington.

Vice Premier Liu He — who is Xi’s top aide for economic matters — will travel Tuesday to the U.S. for trade talks with Treasury Secretary Steve Mnuchin, the Chinese Ministry of Foreign Affairs said Monday in Beijing. Bloomberg News had earlier reported Liu’s travel plans, citing two people familiar with the matter.

Liu will be accompanied by Commerce Minister Zhong Shan, along with deputy ministers from the commerce, finance and foreign affairs ministries, as well as the central bank, one of the people said. Both asked not to be identified because the schedule isn’t public.

Trump said in a Sunday morning tweet that he and Xi are working together to give ZTE “a way to get back into business, fast.” His administration had cut off the massive Chinese company from its U.S. suppliers for violating the terms of a 2017 sanctions settlement related to trading with Iran and North Korea, then lying about it.

Trump in Reversal Says U.S. to Help China’s ZTE Stay Afloat

The move amounted to a drastic shift in tone for Trump, who has sought to use any leverage possible in negotiations aimed at lowering the U.S. trade deficit with China. In a major reversal for a president who has accused China many times of stealing U.S. jobs, Trump said the “Commerce Department has been instructed to get it done!” because “too many jobs in China lost.”

Foreign Ministry spokesman Lu Kang said China “highly commends” Trump’s gesture on ZTE and said it was working on the details with the U.S. “The two sides are maintaining close communication,” he told a regular briefing.

It wasn’t immediately clear if Trump received anything in return. Still, people familiar with the matter said Monday that Chinese regulators have restarted their review of Qualcomm Inc.’s application to acquire NXP Semiconductors NV after having shelved the work earlier in reaction to growing trade tensions with the U.S.

China Is Said to Restart Review of Qualcomm’s Proposed NXP Deal

The approval, if it comes, would mark another step back from a trade war between the world’s two largest economies. Qualcomm declined to comment. China’s commerce ministry didn’t respond to a faxed request for comment. The State Council Information Office didn’t respond to faxed questions.

— With assistance by Haze Fan, Keith Zhai, Ben Brody, Dandan Li, and Peter Martin