Trump puts talks to boost China economic ties on ice

Trump puts talks to boost China economic ties on ice

Treasury’s David Malpass says Beijing is not liberalising economy as hoped

Donald Trump’s administration has put its main programme for bolstering economic relations with China on ice as it complains about the two countries’ swollen trade imbalance, and says Beijing’s efforts to liberalise its economy have gone into reverse. David Malpass, a top economic diplomat for the administration, said in an interview with the Financial Times on Thursday that the Comprehensive Economic Dialogue with Beijing is “stalled” and that there are no plans to revive talks.

The decision comes after the dialogue between the two countries in July ended without any tangible progress.  The CED is a prominent programme involving cabinet-level officials in Washington and counterparts in Beijing and aimed at resolving trade and investment issues. The administration’s disenchantment comes even as Mr Trump attempts to convince Beijing to pressure North Korea over its nuclear missile programme.

The White House is taking an increasingly confrontational approach in its economic relations, including by opposing China’s bid for recognition as a “market economy” in the World Trade Organization.

Mr Malpass, who serves as the Under Secretary for International Affairs at the US Treasury department, spoke of the CED in the past tense, saying it had been intended to make progress on market liberalisation and the economic dialogue between the two countries.

“China is not moving in a market-oriented direction so for now the CED is also stalled,” he said on a visit to New York. “There is not a dialogue on restarting the CED. The critical step is for China to change economic practices to be more in line with global rules and global market liberalisation techniques.” 

Matthew Goodman, an expert on Sino-US economic relations at the Center for Strategic and International Studies, said the admission that the CED had stalled was “another canary in the coal mine ahead of some noxious trade actions coming up the shaft”.

Mr Goodman added that it was the latest sign the Trump administration had little patience for dialogue with Beijing and was “on course to announce a series of tough unilateral trade actions against China”. The harder tone comes after the administration put a positive gloss on talks in July.

At that time Treasury secretary Steven Mnuchin told the FT that the meetings in Washington represented a “very big step” towards addressing the US deficit with China and that Beijing had heard “the marching orders”. Wilbur Ross, the commerce secretary, said at the time that he expected to negotiate dates and targets in upcoming talks.  However, the White House has become concerned about the growing role of state-owned enterprises in China as well as a lack of progress in areas including price liberalisation.

Some Trump administration officials have been expressing growing scepticism about the China talks for some time and were doing so ahead of the president’s trip to Asia last month.  In the first nine months of this year the US had a $274bn trade deficit in goods with China, by far the largest of any of its trading partners.

Back in April the administration appeared far more optimistic following the Mar-a-Lago meeting between Mr Trump and Xi Jinping. “100-day plan” talks were led by Mr Ross, who hailed the resulting resumption in US beef imports by China and other moves aimed at the financial services industry as historic. Mr Trump himself turned to Twitter to proclaim victory.

 “China just agreed that the US will be allowed to sell beef, and other major products, into China once again. This is REAL news!” he tweeted after a May announcement.

But the results that emerged were widely criticised by US business who urged the administration to focus on bigger structural issues. And at a July meeting of the CED in Washington the administration took a tougher line, with Mr Trump rejecting a steel deal that Mr Ross had negotiated with the Chinese as too weak.

The perceived failure of the early dialogue has emboldened China hawks in the administration including Robert Lighthizer, the US trade representative, and Peter Navarro, the economist and author of “Death by China” who is now a senior trade adviser in the White House.

Mr Lighthizer is now overseeing an investigation into China’s intellectual property practices and rules on forced technology transfer that are expected to lead to new trade sanctions against China in one form or another.

The commerce department is still proceeding with national security investigations into steel and aluminium imports that could lead to a combination of quotas and tariffs being announced early next year. This week it “self-initiated” an anti-dumping investigation into aluminium imports, using a power not employed since 1985.

The US has also joined the EU in fighting back against China’s bid to be considered a market economy within the World Trade Organization and has been trying to build alliances with the EU and Japanese within the WTO to push back against Beijing.

And in Berlin on Thursday US officials were engaging in open rhetorical warfare with Chinese officials at a global meeting on steel overcapacity.

Sam Fleming & Shawn Donnan