Trump Needs Specifics From China to Unjam Talks, U.S. Group Says

(Bloomberg) -- To restart trade negotiations with the U.S., China must offer a package of measures that slashes the bilateral trade surplus, lowers import tariffs, provides better protection for intellectual property and stops forced technology transfers.

That's according to Jacob Parker, the vice president for China operations for the U.S.-China Business Council in Beijing. While China can likely do more to cut tariffs and reduce its trade surplus with the U.S. beyond previous offers, there are still wide differences between the two on structural issues including technology transfers, he said.

“When we talk to the U.S. government, they indicate that there needs to be specific, immediate, measurable action,” Parker said in an interview on Thursday. “This can't be a promise for some future liberalization. Both the business community and the U.S. government are just suffering from this promise fatigue from China.”

The Trump administration is stepping up pressure on Beijing to change its trade practices, announcing Wednesday that it's weighing whether to increase the proposed tariff on $200 billion of Chinese goods to 25 percent. The proposed higher rate “is intended to provide the administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets,” U.S. Trade Representative Robert Lighthizer said in an emailed statement.

How we got here: A timeline of the negotiations this year

The U.S.-China Business Council is a Washington-based group representing about 200 companies doing business in China. Here are some key areas Parker says China must make progress on to entice the U.S. back to the negotiating table:

Tariffs

While China now imposes about three times the number of tariffs as the U.S., the Trump administration has indicated it wants China's import tariffs to mirror those in the U.S. Parker said. Slashing that many tariffs would be challenging but it wouldn't be a surprise for additional flexibility from China, he said. The Chinese International Import Expo in Shanghai that's scheduled for November would be a good opportunity to announce further cuts, he said.

Trade Deficit

At earlier talks China offered to increase purchases of U.S. energy and agricultural products by between $75 billion to $100 billion, Parker said. The next step might be to broaden that offer to include sectors such as technology, financial services and cloud computing, he said.

“There's probably flexibility when it comes to negotiating additional items,” he said. “My sense is the Chinese would very much like to get back to the negotiating table and if there were opportunities to do so I think other things could potentially be discussed.”

“We've seen parts of this package offered in the past but I think the Chinese government underestimated the need to address the structural issues in their previous negotiations,” Parker. “That now seems to be dawning on them a little bit more.”

Intellectual Property Rights

China must impose criminal penalties for commercial-scale infringement of intellectual property, according to Parker, who claimed that police shut factories and confiscate products and equipment now, but soon after the factories reopen. “These people should go to prison so there's a real deterrent,” he says. “That's something that China could implement fairly quickly.”

Forced Technology Transfers

Foreign companies being forced to transfer technology to domestic Chinese partners was among key sticking points in previous negotiations, Parker said. According to conversations with both sides, the U.S. views any joint venture requirement as a de-facto technology transfer requirement whereas the Chinese view them as allowed under World Trade Organization rules, he said.

Made in China 2025

The Trump administration is concerned that subsidies for industry under China's controversial Made in China 2025 plan, which aims for global dominance in 10 key strategic industries, are so great that they may distort global markets, says Parker.

China must “ensure that foreign and local companies have equal access to preferential policies and subsidies, and ensure fair, competitive tenders for government and state enterprise procurement,” he said. “These are things that are not happening today that should be happening. Those kinds of things would be helpful for the Trump administration,” Parker said.

So far, there is no public indication that China is taking any of those steps. While Foreign Ministry spokesman Geng Shuang said on Thursday that China's door for dialogue is always open, he warned that pressure or blackmail by the U.S. wouldn't work, and urged the U.S. to take the “correct attitude.”

To contact Bloomberg News staff for this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger, Karthikeyan Sundaram

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