Purchase agreements don’t solve real issues facing US, China

Trade negotiators from Washington just concluded a round of talks in Beijing, where Vice Premier Liu He’s team articulated President Xi Jinping China’s economic interests to staffers for United States Trade Representative Robert Lighthizer and Commerce Secretary Wilbur Ross.

Both sides committed to increasing purchases and finding common ground. Stop if you’ve heard this one before. 

{mosads}Since the start of the cycle of trade, negotiations and relapses, the economies of both sides of the negotiating table have fundamentally changed. As of this moment, both the United States and China grapple with economic slowdowns and broader economic planning problems but also dueling security interests. These are problems that changing purchase commitments can’t solve. 

In 2018, China’s government observed slippage in several economic indicators. Consumer spending posted the lowest growth numbers in 15 years in November 2018, according to the National Bureau of Statistics.  

At present, pricey infrastructure sectors are starting to rely on government support once again; the People’s Bank of China announced a $116 billion cut in required reserves, freeing cash for lending activity. 

While overseas investment projects through the Belt and Road Initiative could offset some cuts lost by domestic infrastructure projects, China’s economic trajectory is veering toward a point where growth from the era of high-speed industrialization is tapering off.  

Barring sudden success from the ambitious Made in China 2025, which aims to grow a lucrative technology-powered service sectors, China is going to need better solutions to expanding its economic growth. That’s where maintaining trade relationship with America — and the rest of the its trading partners — comes in. 

In the United States, the trade war impacts a wide swath of industries, ranging from automobiles to electronics to agricultural products. President Trump’s “America First” economic doctrine has meant that internationally, Washington’s wanted to have its cake and eat it too.

America’s wishlist going forward has been for open-market competition. However, it also seeks stepped-back governance and rulemaking commitments and has exited agreements like the Trans-Pacific Partnership (TPP). 

In multilateral spaces, governments are forging ahead with TPP in a scramble to get good deals and achieve their own economic interests — with or without Washington.

Looking forward, American corporations are now operating in a world where their original-branding edge may have started to fade.

If Apple’s low sales numbers in China and India at the close of 2018 are any indication of big brands’ performance going forward, America’s private sector is looking to tighten belts and navigate both the trade war and other emergent challenges in global competition.  

For America, looming over this trade outlook with China are a number of emergent and increasingly critical security concerns. At the forefront of these policy questions are cybersecurity issues posed by Chinese telecommunications and computing manufacturers.

China’s biggest firms made headlines 2018, including the threat of helping Iran sell and buy technological products, aided by ZTE, and Huawei’s alleged fraudulent circumvention of similar sanctions.

These suspicions have drawn international scrutiny toward big Chinese telecommunications firms and have raised questions about Chinese firms’ conduct and the depth of their ties to the state.

One after another, Five Eyes security bureaus have been banning the use of Huawei devices and curbing its involvement in 5G internet projects. In addition, intelligence agencies have been collaborating on information-sharing since July.

Currently, the case against Huawei CFO Meng Wanzhou is being tried in Canada. How this DOJ indictment pans out — and if it is seen by China as collateral in the trade war — will shape the nature of conversations that occur.

If detentions become a tit-for-tat component, China’s reciprocal detentions of third-party individuals like Canadians Michael Spavor and Michael Kovrig could become a more alarming and commonplace tactic.

While conventionally this case would be decided and analyzed separately from trade negotiations, Donald Trump has suggested that he may intervene to get a better deal from China in a move that stokes political rumors and sentiments in China that Huawei is scapegoated.

{mossecondads}While present trade talks proceeded smoothly, Trump’s remarks present a potential problem for America in signaling to China that hostage exchanges and detention may become a more regular component of policy negotiation processes with China.

In China, he would find a negotiating partner willing and able to use a broad range of police powers against Chinese, American and third-country citizens.

Looking forward, there remain a number of economic concerns that require coordination between China and the United States. To name a few, there are potential common interests in building more green economies, clamping down on international white-collar crime and facilitating effective deals between multilateral corporations.

But until these consensus points become a more serious and fundamental part of negotiation processes, they are going to remain things that are nice to have rather than the building blocks for smoother economic relations.

In the meantime, changing economic landscapes and longstanding security tensions will continue to be at the forefront of policy-making.

Rui Zhong is the program assistant for the Kissinger Institute on China and the United States at the Wilson Center.