China Warns U.S. Firms as Trade War Brews: Buckle Up

Tit-for-tat tariffs and other punishments threaten multinationals with a footprint on the mainland

Chinese President Xi Jinping visited a Boeing assembly line in Washington in 2015—but the current U.S.-China trade fight could prompt Beijing to favor rival aerospace giant Airbus.
Chinese President Xi Jinping visited a Boeing assembly line in Washington in 2015—but the current U.S.-China trade fight could prompt Beijing to favor rival aerospace giant Airbus. PHOTO: MARK RALSTON/AGENCE FRANCE-PRESSE/GETTY IMAGES

BEIJING—When a group of American executives and other global corporate chieftains met with Chinese Vice President Wang Qishan in late March, they received a stern message about the simmering U.S.-China trade conflict: If tensions escalate, buckle up.

“The message was pretty clear,” said a person who attended. “A lot of companies would become victims in a U.S.-China trade war.”

That is what American multinationals are now bracing for, after the Trump administration said it would move ahead with 25% tariffs on $50 billion in Chinese goods. Beijing said in response to the U.S. move Friday that it would retaliate in “equal scale and equal strength.”

While a battle between the world’s two largest economies would inflict pain on businesses and consumers in both countries, in the crosshairs, in particular, are multinationals with a footprint in the mainland.

China's Vice President Wang Qishan, shown last month, has warned multinationals with a footprint in China that they could be hurt in a trade war with the U.S.
China’s Vice President Wang Qishan, shown last month, has warned multinationals with a footprint in China that they could be hurt in a trade war with the U.S. PHOTO: THOMAS PETER/AGENCE FRANCE-PRESSE/GETTY IMAGES

A sophisticated global supply chain means many foreign companies nowadays assemble their products in China with parts bought elsewhere, and then sell to the U.S. and other markets. That leaves them vulnerable to any new U.S. sanctions as well as pressure and other retaliation from Beijing.

Foreign-invested companies, including firms from Hong Kong and Taiwan, produce 43% of China’s exports, according to an analysis by the Conference Board, a New York think tank. The manufacturers among them notably make up 77% of China’s exports of information and communications technology—a sector highlighted by the Trump administration for new tariffs.

At the March gathering, people who attended said, Mr. Wang told the business leaders—which included senior executives from International Business Machines Corp. , chip makerQualcomm Inc. and private-equity firm Blackstone Group —that they should try harder to lobby the Trump administration against launching a trade offensive.

The U.S. said on Friday the trade levies are designed to hit products linked to Chinese strategic plans to dominate new high-technology industries, and released a list that covers 1,102 categories of goods.

Shortly afterward, China’s State Council said it would levy penalties of the same rate on U.S. goods of the same value, expanding its list of U.S. products that would be subject to tariffs to 659 types of goods, from some 106 types it disclosed in April. Categories include farm products such as soybeans, pork and chicken, automobiles, chemicals, crude oil and coal.

President Donald Trump had said earlier Friday that the U.S. would respond with more tariffs if China retaliates.

While multinationals assess the potential impact from the escalation of trade tensions, makers of consumer electronics have been canvassing suppliers and, in the case of at least two personal-computer makers, inquiring about shifting some of production in China to the U.S.

Foxconn Technology Group of Taiwan, the world’s largest contract manufacturer of electronics and known for assembling Apple Inc.’s smartphones in China, conducted a review of its supply chain, said a person familiar with the matter. The review, which assessed the proficiency of Chinese suppliers, could be used to assess the impact of potential tariffs, the person said.

It isn’t clear if Foxconn is taking any action following the review; the company didn’t respond to a request for comment late Friday.

The new U.S. tariffs exempt commonly purchased consumer goods, according to the U.S. Trade Representative. Semiconductors—the guts of smartphones and many connected devices—were put on the target list, drawing protest from the Semiconductor Industry Association. The Washington-based trade group said that most semiconductors exported from China are designed and made in the U.S.

Boeing Co. is likely to feel the pain from both sides, though it stands to get hurt more by potential Chinese retaliation. Boeing, the largest U.S. exporter, delivered 202 aircraft to China last year—more than a quarter of its total global sales. Past rounds of political tensions with the U.S. have seen China switch its purchases to rival Airbus SE, and Chinese state media have warned to expect the same this time.

Boeing also buys some parts for its 737 and 787 jetliners from Chinese suppliers, mainly the state-run Aviation Industry Corp. of China. The latest U.S. tariffs include some China-made aerospace products, potentially jacking up the costs of those components for Boeing. But they constitute a small part of Boeing planes’ total value, according to aviation analysts.

Chip maker Foxconn’s industrial park in southwest China's Guizhou Province. The Taiwan company has conducted a supply-chain review that could be used to assess the impact of potential tariffs, according to a person familiar with the matter.
Chip maker Foxconn’s industrial park in southwest China’s Guizhou Province. The Taiwan company has conducted a supply-chain review that could be used to assess the impact of potential tariffs, according to a person familiar with the matter. PHOTO: LIU XU/XINHUA/ZUMA PRESS

Also hanging in the balance is Qualcomm’s planned $44 billion purchase of Dutch companyNXP Semiconductors NV, a deal widely seen as critical for the U.S. chip maker. Late last month, amid signs of progress in trade talks by Washington and Beijing, Chinese authorities indicated their intention to wrap up the review and clear the transaction.

Momentum, however, stalled following the White House decision to move ahead with tariffs and congressional pushback against Mr. Trump’s decision to save China’s ZTE Corp . from crippling punishment for violating U.S. sanctions.

“The anticipated escalation of trade tensions will complicate China’s ability to approve the Qualcomm-NXP transaction from a face-saving perspective,” said Stephen Myrow, a former Treasury official in the George W. Bush administration who is now managing partner of Beacon Policy Advisors LLC., a U.S. research firm.

The U.S. is stepping up its trade offensive over what the Trump administration alleges is Beijing’s pressure on U.S. firms to transfer technology to Chinese companies. In doing so, the U.S. is effectively ending a truce called late last month by U.S. Treasury Secretary Steven Mnuchin and China’s chief trade negotiator Liu He, following the second of three rounds of talks.

“Three rounds of negotiations with Beijing have failed to delay or prevent this outcome,” said Tai Hui, chief market strategist at J.P. Morgan Asset Management. “The threshold to come to a consensus or a compromise seems high.”

Some Chinese officials said they are feeling frustrated by the Trump administration’s shifting positions, which they say have hurt the credibility of the U.S. government. The U.S. is “provoking the trade war,” Chinese Foreign Ministry spokesman Lu Kang said Friday night.

Washington’s latest hard-line approach, Chinese officials said, isn’t going to wring concessions from China.

In particular, Beijing isn’t going to give up its plan to upgrade its manufacturing capabilities as laid out in the Made in China 2025 initiative—specifically targeted by the new U.S. tariffs to prevent “unfair transfers of American technology and intellectual property,” the Trump administration said.

“It’s wrong for the U.S. to think its pressure tactics are working,” said a Beijing official.

Already, some U.S. companies are facing increased regulatory scrutiny in China, according to Jacob Parker, vice president of China operations at the U.S.-China Business Council. For instance, he said, it takes longer for their products to clear Chinese customs; in other instances, Chinese regulators are putting advertisement slogans by U.S. firms under review. Some automobiles and farm products such as pork from the U.S. have piled up at ports.

“Maintaining a low profile in the China market and ensuring that you’re completely compliant are more important now than in the past,” Mr. Parker said.

Write to Lingling Wei at lingling.wei@wsj.com and Yoko Kubota at yoko.kubota@wsj.com

Russia and China Show Off Ties With Putin Visit

On the first day of a trip to China, the Russian president receives the newly created Friendship Medal

Chinese President Xi Jinping congratulates Russian President Vladimir Putin after presenting him with the Friendship Medal in the Great Hall of the People in Beijing.
Chinese President Xi Jinping congratulates Russian President Vladimir Putin after presenting him with the Friendship Medal in the Great Hall of the People in Beijing. PHOTO: GETTY IMAGES

Russia and China have signed a raft of deals and pledged tighter coordination on security and foreign policy, underscoring how disputes with the U.S. are drawing the neighbors closer.

Russian President Vladimir Putin, on the first day of a three-day trip to China on Friday, and Chinese President Xi Jinping flaunted their relationship as Mr. Putin received the newly created Friendship Medal from his host in an extravagant ceremony.

“Cooperation with China is one of Russia’s top priorities and it has reached an unprecedented level,” Mr. Putin said.

Russia has increasingly looked to China for investment and as a political ally as the U.S. and its partners have piled sanctions on Moscow over its military adventures abroad and interference in Western countries.

Concerns in Beijing that President Donald Trump could forge closer ties with Mr. Putin and leave China as the odd one out among the world’s largest powers have dissipated as Washington and Moscow continue to feud. Now, Russia and China are coordinating in places of mutual interest like Iran and North Korea, presenting a united front in criticizing U.S. sanctions and tariffs, and deepening business ties.

On Friday, Russian and Chinese officials signed nuclear, space and transport deals, among others, as well as a statement condemning the Trump administration’s withdrawal from a nuclear deal with Iran and pledging further military and diplomatic cooperation.

The relationship has been buttressed by a close personal connection between the presidents. State broadcaster China Central Television aired an interview with the Russian leader on Wednesday in which he recalled celebrating a birthday with Mr. Xi over shots of vodka and sliced sausage.

“I haven’t established this kind of relationship or made similar arrangements with my foreign colleagues, but I have with Chairman Xi,” Mr. Putin said in the interview.

CCTV inserted the birthday comments in an online video entitled “A Kind of Internet Star Called Putin,” that also featured shots of him playing piano, strutting past applauding crowds and meeting—repeatedly—with Mr. Xi.

The Chinese leader, who recently engineered a scrapping of presidential term limits in China’s constitution, has said he and Mr. Putin are “similar in character.” He was quick to call with congratulations after the Mr. Putin rode a landslide election victory to his fourth term in March.

“Together we’ve ensured that Sino-Russian relations have withstood the test of global uncertainty and arrived at their best point in history,” he told Mr. Putin.

China has plowed billions into Russian companies owned by the Kremlin or people close to Mr. Putin, providing Russia with some relief from Western sanctions. But the economic relationship is an unbalanced one; aside from hydrocarbons and weapons, China imports little from Russia.

Chinese leaders continue to see Russia as a vital counterbalance to the U.S. in Asia and elsewhere, analysts say, especially after the U.S. national security strategy labeled them as America’s top adversaries.

Russia and China have increased military cooperation in recent years, holding joint drills in the North Pacific and the Baltic Sea last year.

“Russia increasingly plays on team China as a junior partner,” said Alexander Gabuev, an expert on Russia-China relations at the Carnegie Moscow Center. “Russia is punching above its weight in geopolitics and doing things that the Chinese are not capable or daring enough to do.”

COURTESY: WSJ

China Offers to Buy Nearly $70 Billion of U.S. Products to Fend Off Trade Tariffs

Beijing says purchase hinges on whether Trump imposes threatened tariffs

U.S. Commerce Secretary Wilbur Ross arrives at a state dinner in Beijing in November. Mr. Ross led the U.S. delegation in the round of trade talks that concluded in Beijing on Sunday.
U.S. Commerce Secretary Wilbur Ross arrives at a state dinner in Beijing in November. Mr. Ross led the U.S. delegation in the round of trade talks that concluded in Beijing on Sunday. PHOTO: THOMAS PETER/REUTERS

China offered to purchase nearly $70 billion of U.S. farm, manufacturing and energy products if the Trump administration abandons threatened tariffs, according to people briefed on the latest negotiations with American trade officials.

In weekend talks in Beijing, Chinese negotiators led by Liu He, President Xi Jinping’s  economic envoy, presented a U.S. team headed by Commerce Secretary Wilbur Ross a package that includes Chinese companies buying more U.S. soybeans, corn, natural gas, crude oil, coal and manufactured goods.

Chinese and U.S. officials estimated the value of the package at nearly $70 billion in the first year.

President Donald Trump has pressed China to commit to reduce the $375 billion U.S. merchandise trade deficit with China by $200 billion. Chinese officials are arguing this could go a long way toward meeting that target.

Throughout the negotiations, Mr. Liu made clear to Mr. Ross that the offer would be void if Washington proceeds with its plan to impose tariffs on $50 billion of China-made products, the people briefed on the talks said.

That proviso could make the deal a non-starter in Washington, where the White House has said it plans to move ahead with the tariffs shortly after June 15, as a way to pressure China to make more sweeping changes in its economy.

Chinese trade negotiators offered to increase imports of U.S. soybeans by easing its import regulations. Above, soybeans are harvested in Princeton, Illinois, in September.
Chinese trade negotiators offered to increase imports of U.S. soybeans by easing its import regulations. Above, soybeans are harvested in Princeton, Illinois, in September. PHOTO: DANIEL ACKER/BLOOMBERG NEWS

The U.S. wants Beijing to stop pressuring U.S. firms to transfer technology to their Chinese partners and halt what the U.S. considers unfair subsidies and other aid to Chinese firms that compete internationally for advanced technology.

Mr. Ross briefed Mr. Trump on the results of his weekend trade mission on Monday, and plans to continue discussing details of his trip with other U.S. trade officials on Tuesday, according to people familiar with the negotiations.

Getting ThereBeijing offered to purchase nearly $70 billionin additional U.S. exports, which falls short ofU.S. goals of reducing its trade deficit withChina by $200 billion.Source: U.S. Census Bureau
$375 billion305175Actual 2017 deficitWith China’s offerU.S. goal

U.S. officials are skeptical of the Chinese offer for several reasons, said people involved with the talks. They argue that Chinese energy purchases would largely divert U.S. sales to other nations and have no overall impact on the U.S. trade deficit. They also aren’t sure that the U.S. could ramp up agriculture production that quickly.

The White House said early last week that it would go ahead with the levies and other sanctions to restrict China’s access to U.S. technology and punish Beijing for what the U.S. says are unfair trade practices.

The decision, which came less than two weeks after both sides declared a truce in their simmering trade dispute, complicated the mission of Mr. Ross, who originally scheduled the Beijing trip with the goal of securing a deal but left Beijing late Sunday without a settlement.

During the discussions, Chinese negotiators also raised the question of whether the U.S. was moving ahead with Mr. Trump’s pledge early last month to save China’s ZTE Corp. from crippling U.S. sanctions, the people briefed on the talks said. That pledge has been opposed by some U.S. lawmakers.

China’s offer would benefit the Farm Belt states that helped Mr. Trump win the election in 2016. By promising to buy more American soybeans, corn and other agricultural products, China pledged to ease certain regulations to boost its imports of those goods, the people said.

The Chinese team also promised to get state-owned companies to buy more U.S. natural gas, though it could take some time for American firms to ramp up production. By potentially boosting Chinese imports of U.S. coal, Beijing is targeting states like Pennsylvania and West Virginia that are key to the U.S. midterm elections, the people said.

But the offers didn’t include a signed deal. “Nothing has firmed up yet,” one of the people said, referring to the Chinese offer. “It would require additional rounds of discussions between the two sides.”

In a tweet Monday, President Trump wrote: “Farmers have not been doing well for 15 years. Mexico, Canada, China and others have treated them unfairly. By the time I finish trade talks, that will change.”

Write to Lingling Wei at lingling.wei@wsj.com and Bob Davis at bob.davis@wsj.com

COURTESY: WSJ

Global Trade Tensions Intensify

Allies’ public rebuke of the U.S., retaliatory moves test Trump ahead of G-7 meeting

U.S. Commerce Secretary Wilbur Ross on Sunday arrived at the Diaoyutai State Guesthouse in Beijing to meet with Liu He, China’s economic czar, for trade negotiations as the two countries edged closer to imposing tariffs on one another.
U.S. Commerce Secretary Wilbur Ross on Sunday arrived at the Diaoyutai State Guesthouse in Beijing to meet with Liu He, China’s economic czar, for trade negotiations as the two countries edged closer to imposing tariffs on one another. PHOTO: ANDY WONG/PRESS POOL

The Trump administration showed no sign of backing down from restrictive tariffs in the face of pushback from allies and China over the weekend, isolating the U.S. and complicating the president’s meeting later this week with leaders of Washington’s staunchest partners.

Top finance officials from the Group of Seven leading nations met in Canada, where the non-U.S. members issued a public rebuke of Washington’s new steel and aluminum tariffs. Those six—the host Canada, along with France, Germany, Italy, Japan and the U.K.—adopted a formal statement Saturday expressing their “unanimous concern and disappointment.”

The following day in China, Beijing said it wouldn’t abide by any agreement to buy more U.S. products without assurances that the U.S. wouldn’t go ahead with plans to hit it with tariffs on $50 billion on Chinese imports.

But even with retaliatory moves under way in China as well as in Europe and North America, there was no sign over the weekend that the administration was wary of inching closer to a trade war.

“When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War!” President Donald Trump said in a Twitter message Saturday. “The U.S. has been ripped off by other countries for years on Trade, time to get smart!”

The disputes come just as the Trump administration has its arms full of difficult negotiating tasks. Most immediately, Mr. Trump himself now must face leaders of countries who have termed his policies extreme, unwise and in some cases illegal when he arrives in Quebec for a summit of G-7 heads of state scheduled for Friday and Saturday.

That will be followed by a planned summit with North Korea in Singapore just three days later, on June 12. Mr. Trump also is facing European opposition to his push to rewrite the 2015 Iran nuclear deal, and is planning for a summit with Russian President Vladimir Putin.

Still, the push to impose tariffs is causing the most immediate friction. The White House has said the tariffs imposed last week—25% on steel and 10% on aluminum from Canada, Mexico and the European Union—were designed to address the role steel imports have played in undermining the viability of the U.S. steel industry, without which the country would have difficulty mobilizing for its defense.

The administration has signaled its intent to use a similar security argument to affix tariffs on cars from Germany and Japan, and industrial supplies from China.

In response to the tariffs, the administration absorbed one punch after another. Canadian Prime Minister Justin Trudeau called the U.S. move “frankly insulting and unacceptable” in a televised interview Sunday, while his foreign-affairs minister compared it to pre-Depression U.S. policies.

Global Trade Tensions Intensify

“We know that beggar-thy-neighbor policies don’t work. That was the lesson of the 1920s and the 1930s,” said the minister, Chrystia Freeland, on CNN. “And I really hope people will take some time to reflect on the lessons of history, and not go down that path again.”

Mário Centeno, the Portuguese finance minister who participates at the G-7 by virtue of being president of the Eurogroup, the association of eurozone finance ministers, described the U.S. position within the G-7 in stark terms.

“We can say the U.S. went into the tariff issue alone and they remain alone around the table,” said Mr. Centeno in an interview.

With U.S. lawmakers set to return from a Memorial Day break, many top Republicans such as Sen. Orrin Hatch, chairman of the Senate Finance Committee, are warning the administration to change course. In March, more than 100 congressional Republicans urged Mr. Trump in a letter to avoid tariffs.

The decision to impose tariffs contributed to volatility in global financial markets and led to predictions of potentially adverse economic impacts.

Economists warned that retaliation leading to increased trade barriers on the order of those that existed in the early 1990s could cost thousands of American jobs and even point the U.S. toward recession. Business groups said the number of jobs lost, in the worst case scenario, could climb into the millions.

As the weekend’s dust was settling, Mr. Trump’s top economic adviser, Lawrence Kudlow, played down the eruption. He said tariffs are necessary to close loopholes and “correct several decades of abuse” in global trade, telling Fox News that Mr. Trudeau, in particular, was overreacting to a “family feud.”

“The president has a quiver of tools, and tariffs are part of that quiver,” he told The Wall Street Journal.

The G-7 gathering was held for finance chiefs in advance of the summit of those countries’ top leaders. The G-7, a club of industrialized nations formed around common interests, rarely issues such strong condemnation aimed at one of its members.

More unlikely is the fact that the target of the criticism is the U.S., which has done more than any other country to establish the free-trade principles upon which the global economy functions today.

“I do not ever recall an instance where the U.S. was singled out for rebuke,” said Daniel Price, managing director of Rock Creek Global Advisors, who represented the George W. Bush administration for G-7, G-20 and Asia-Pacific Economic Cooperation summits. “Traditionally, the U.S. has been a driver of G-7 unity, and typically leads efforts to reach consensus. On trade, the U.S. has quite dramatically become a source of discord and division.”

As the source of the consternation, Mr. Trump now must face G-7 leaders in five days’ time. As he does, other countries are adopting a wary stance even if they have so far been spared by Mr. Trump.

“Trump is trying to get rid of bilateral trade deficits,” said former U.S. Trade Representative Carla Hills, a Republican critic of the Trump administration’s trade strategy. “He’s lining up [trade disputes] one by one.”

Ms. Hills said she thinks the administration has taken the wrong strategy on China by fighting first with allies over steel and aluminum, especially given that U.S. complaints about China mirrored those of Washington’s friends.

“It would have been more effective if we joined with six of our closest allies and acted together,” she said. “Instead, we went after our allies and acted unilaterally” on China.

Treasury Secretary Steven Mnuchin, who attended the G-7 finance officials’ meeting, denied the U.S. was left outside the consensus on all matters and insisted Washington is playing a central role. “I don’t think in any way the U.S. is abandoning its leadership in the global economy,” Mr. Mnuchin said.

“These are our most important allies,” Mr. Mnuchin said. “We’ve had longstanding relationships with all these countries that are very important across all different aspects.”

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Bob Davis at bob.davis@wsj.com

COURTESY: WSJ

South China Sea dispute: Beijing attacks ‘irresponsible’ US comments

A photograph from 2015 of Chinese vessels around Mischief Reef in the disputed Spratly IslandsImage copyrightREUTERS
Image captionA photograph from 2015 shows Chinese vessels around Mischief Reef in the disputed Spratly Islands

China has branded as “irresponsible” US comments that it is intimidating its neighbours with its military deployment in the South China Sea.

A top Chinese general said China had the right to deploy troops and weapons “on its own territory”.

Earlier US Defence Secretary James Mattis said Beijing’s actions called into question its broader goals.

Six countries have competing claims in the sea, but China has backed its own with island-building and patrols.

Gen Mattis had made his critical comments at a security summit in Singapore.

Speaking at the same conference, China’s Lt Gen He Lei said: “Any irresponsible comments from other countries cannot be accepted.”

Gen He said Beijing’s deployments were part of a policy of “national defence”, adding: “They are for the purpose of avoiding being invaded by others.

“As long as it is on your own territory you can deploy the army and you can deploy weapons.”

South China Sea

Gen He added: “We see any other country that tries to make noise about this as interfering in our internal affairs.”

Gen Mattis said Beijing had deployed military hardware, including anti-ship missiles, surface-to-air missiles and electronic jammers to locations across the South China Sea.

“Despite China’s claims to the contrary, the placement of these weapon systems is tied directly to military use for the purposes of intimidation and coercion,” he said.

“China’s policy in the South China Sea stands in stark contrast to the openness that our strategy promotes, it calls into question China’s broader goals.”

Satellite image of Woody IslandImage copyrightREUTERS
Image captionA satellite image of Chinese deployments on Woody Island in the disputed Paracels group

Despite his criticism, Gen Mattis added that the US would “continue to pursue a constructive, results-oriented relationship with China” with “co-operation whenever possible”.

Last month China said it had for the first time landed bombers on Woody Island in the Paracel Islands, prompting US warnings that it was destabilising the region.

Woody Island, which China calls Yongxing, is also claimed by Vietnam and Taiwan.

Gen Mattis was speaking just 10 days before President Donald Trump is scheduled to meet North Korean leader Kim Jong-un in Singapore.

Gen Mattis said the issue of removing US troops from South Korea was “not on the table” and that “our objective remains the complete, verifiable, and irreversible denuclearisation of the Korean peninsula”.


The South China Sea dispute

Media captionRupert Wingfield-Hayes says China is determined to assert its control
  • Sovereignty over two largely uninhabited island chains, the Paracels and the Spratlys, is disputed by China, Vietnam, the Philippines, Taiwan and Malaysia
  • China claims the largest portion of territory, saying its rights go back centuries – in 1947 it issued a map detailing its claims
  • The area is a major shipping route, and a rich fishing ground, and is thought to have abundant oil and gas reserves

COURTESY: BBC

U.S., China Trade Negotiators Haggling Over Purchases of American Goods

Washington seeks long-term contracts; Commerce Secretary Ross heading to Beijing this weekend to lead talks

A worker picks cherries during harvest in Lodi, Calif., on Tuesday. Renewed trade-related tensions with China has worried farmers across California, many of whom  grow staple products that are targeted for tariffs.
A worker picks cherries during harvest in Lodi, Calif., on Tuesday. Renewed trade-related tensions with China has worried farmers across California, many of whom grow staple products that are targeted for tariffs. PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS

BEIJING—U.S. and Chinese trade negotiators are haggling over how to get Beijing to carry out recent promises to purchase more American farm and energy products, with Washington pushing for long-term contracts that Chinese officials are reluctant to commit to.

The snag is hanging over high-level negotiations scheduled for this weekend. U.S. administration officials, having said earlier that a lack of progress by the advance team might lead to Commerce Secretary Wilbur Ross canceling a trip to Beijing, said Mr. Ross remains scheduled to be in China on Saturday. The plan is for two-days of talks in Beijing with China’s top trade negotiator, Liu He, but the White House’s recent moves to revive the threat of tariffs on Chinese imports have complicated the prospects for his mission.

During the discussions, held by a U.S. advance team and its Chinese counterpart in Beijing on Thursday and Friday, U.S. officials pressed their Chinese peers to commit to multiyear purchase agreements, according to people with knowledge of the exchanges from both sides. For the U.S., such pacts could be useful in prodding China to significantly lower tariffs and ease regulations and other barriers to imported goods.

Chinese officials have been reluctant to get locked into long-term commitments, these people said. Beijing wants “control and leverage,” one of them said.

The U.S. team, which includes officials from the Commerce, Treasury, Agriculture and Energy departments and the office of the U.S. Trade Representative, was scheduled to make recommendations late Friday to Mr. Ross on whether he should travel to Beijing this weekend as planned to lead the negotiations, according to the people. Chinese officials said their government is committed to dialogue to fend off a trade war with the U.S. Mr. Ross wanted to take the trip to maintain conversations with Beijing, the people said.

The trip was initially seen as a positive move in the months of wrangling between the U.S. and China over trade, a follow-up after both sides declared a truce two weeks ago. On Tuesday, however, the Trump administration unexpectedly declared it would move forward with tariffs on $50 billion in Chinese goods and take other actions aimed at restricting China’s access to U.S. technology.

The U.S. team led by Mr. Ross is aiming to secure a deal in which China would buy more U.S. soybeans, beef, poultry, natural gas and crude oil, among other agricultural and energy products. The U.S. hopes that such purchases would narrow its trade deficit with China, which stood at $375 billion last year. President Donald Trump wants the trade gap slashed by at least $200 billion by 2020.

In negotiations in May in Washington, a Chinese team led by Mr. Liu, President Xi Jinping’s economic envoy, agreed to try to step up purchases of U.S. goods, though it declined to commit to any numerical targets. In the Beijing talks this week, Chinese negotiators again have resisted agreeing to specific, long-term commitments.

One reason for the Chinese side wariness to make concessions are President Trump’s looming tariffs and restrictions on Chinese investments, according to the people. On top of that, a divide between Trump administration factions also casts doubt over how long any trade deal can last, these people said.

Related Video

What the U.S.-China Trade War Means for Workers on the Ground

Trade pressure on farmers has helped fuel the latest talks between U.S. and China aimed at lifting tariffs on soybeans, hogs and more. Here, an American farmer and a steelworker explain how tariffs are impacting their livelihoods.

A group led by Treasury Secretary Steven Mnuchin has been pushing for a deal centered on boosting U.S. exports to China, while another led by U.S. Trade Representative Robert Lighthizer is looking for more significant changes in how China treats foreign companies—and is more willing to resort to trade sanctions even if they disrupt financial markets.

China’s chief trade negotiator, Mr. Liu, so far has had the blessing of President Xi to use the U.S. pressure to accelerate plans to liberalize financial markets, the auto sector and other industries, according to Chinese officials. But he is also running up against growing nationalist calls for Beijing to take a tougher stance against U.S. demands. Many state-owned companies, for instance, have a strong interest in keeping foreign competitors at bay.

Those differences suggest that rather than a breakthrough, Washington and Beijing are likely in for a long haul of recurring talks, economists and analysts in both countries said.

Meantime, as U.S.’s plans to impose levies on imports from its allies prompt anger and retaliation from countries including Canada and Mexico, China is trying to line up other countries against Washington by enticing them with greater access to Chinese markets. On Friday, China’s Finance Ministry released a list of more than 1,000 products that will be subject to lowered import tariffs, starting July 1.

Chinese consumers have long complained about having to pay much higher prices for Bvlgari jewelry, Rolex watches and other imported items sold on the mainland. By cutting the tariffs, Beijing is also hoping to spur domestic consumption as a way to offset any weakening of trade and to keep the economy on an even keel.

“To counter the effects from the U.S.-China trade conflict, China should continue to open its markets to the rest of the world,” said Zhang Ming, a senior economist at the Chinese Academy of Social Sciences, a government think tank in Beijing.

Write to Lingling Wei at lingling.wei@wsj.com

COURTESY: WSJ

Sieren’s China: Tension over the South China Sea

China is deploying long-distance bombers, while the US is sending out destroyers on patrol. Though the tension in the South China Sea is mounting, DW’s Frank Sieren is doubtful it will turn into a military conflict.

    

 Fiery Cross Reef Spratly Islands (CSIS/AMTI/Digital Globe)

Beijing spoke of a “provocation” that was a “serious violation of Chinese sovereignty” after two US warships – the destroyer USS Higgins and the guided missile cruiser USS Antietam – passed by the Paracel Islands on May 27, escalating the territorial dispute over the South China Sea.

According to Beijing says that the ships entered Chinese territory without permission. Washington’s response was that this was a routine mission in accordance with “international law.”

Huge resources

The dispute isn’t just about a few islands, most of which are just rocks in the middle of nowhere. The South China Sea is one of the most important maritime routes in Asia, with goods worth over $5 trillion (€4.2 trillion) being transported annually. There are important oil and gas reserves under the sea and fishing is of huge significance.

China lays claim to 80 percent of the 3.5 million square meter territory, but Vietnam, the Philippines, Malaysia, Taiwan and Brunei dispute this claim. In 2016, the International Court of Justice in The Hague rejected China’s claims after a complaint by the Philippines. Beijing has since ignored the judgment and continued to expand its presence in the region.

The outcome of the dispute over the South China Sea will help to decide whether China, as it grows increasingly powerful, is able to reduce the US’s presence in Asia, alongside the results of the negotiations over the Korean peninsula.

Frank Sieren *PROVISORISCH* (picture-alliance/dpa/M. Tirl)

Frank Sieren

Though the US military claimed that its mission was not a “political statement” against any country in particular, the timing was far from random. Two weeks ago, the US disinvited China from international military exercises that have taken place every two years since 1974, citing “China’s moves to militarize” the South China Sea. Beijing apparentlyrecently tested long-distance bombersequipped for nuclear attacks in the region. This followed the creation of artificial islands – supposedly for the fishing industry – and Chinese development of missile-defense systems on the uninhabited Spratly Islands.

The US Department of Defense said that these bomber maneuvers intensify the tensions and destabilize the region. The Chinese ministry of defense retorted that such maneuvers were crucial for strengthening China’s navy and air force and improving the country’s defense capabilities.

Could a military conflict actually occur after threats of a trade war and the verbal battles that Beijing and Washington have engaged in since US President Donald Trump entered the scene? One might think that Beijing is rapidly preparing itself for this: Over the past three years, Chinese President Xi Jinping has driven forward the biggest structural military reform in recent Asian history. The idea is to have a modern and skillful People’s Liberation Army by 2020 when the army, air force and navy come under one central command.

Moreover, China wants to be in a position to deploy its military force, especially the navy, over long distances. Since 2000, China has built more corvettes, destroyers, frigates and submarines than Japan, South Korea and India put together. Earlier this month, the first aircraft carrier built entirely by China enjoyed its maiden voyage.

Infografik Karte South China Sea: Chinese claims and disputed islands

US remains strongest maritime power

The rumor in Chinese military circles has it that China intends to expand its fleet by five or six more aircraft carriers so that it can deploy two in the West Pacific and the Indian Ocean respectively. Still, China is not close to catching up with the US. With its 10 air craft carriers, the US is the greatest maritime power in the world. By increasing the US’s military budget generously, Trump has made it clear that this is to remain the case.

Under Trump, the US insists on carrying out its “freedom of navigation” operations in the South China Sea. At the beginning of the year, US Secretary of Defense James Mattis traveled to Vietnam and Indonesia to intensify military cooperation in the region. In November 2017 China agreed to further negotiations with the Association of Southeast Asian Nations (ASEAN) in order to find a peaceful solution to the territorial disputes that have gone on for years.

Trump doesn’t want a war

Since China is working increasingly closer with its neighbors, including in the context of the new Silk Road, it has a better hand at the negotiating table. Long-term prosperity is more attractive than the military presence of a protective police officer who does not take that much interest in the interests of its former allies.

If states to not want to be protected, then even the US will not be able to justify military conflict in the region. By sending a destroyer in the direction of the disputed islands, Trump’s message is clear: He wants to build up pressure in order to achieve more concessions in economic matters.

Frank Sieren has lived in Beijing for over 20 years.

COURTESY: DW