Recently the Nihon Keizai Shimbun Electronic Edition reported the following:
米中、突き当たった岩盤 国家主導経済 譲らず
2019/5/12 2:00日本経済新聞 電子版
2019/5/12 2:00 Nihon Keizai Shimbun Electronic Edition
The US-China trade negotiations, which were considered to be nearing an agreement, had run into unseen difficulties. The ministerial-level talks in Washington ended without any agreement, and the United States announced on the 13th that it would release the details of the "fourth wave" that expanded the target of tariff to all imports from China. The two countries had agreed to continue negotiations, but the gap between the two countries over the underlying national system was deep. There was growing concern that the US-China clash, the biggest risk to the global economy, would intensify again.
"Agreement is difficult at the ministerial level. It is hoped that it would be settled in a submit between US President Trump and Chairman Xi Jinping together with the leaders."
Ministerial talks were held on 9th-10th at the US Trade Representative (USTR) office. China's Deputy Prime Minister Liu He was just repeating requests in front of Lighthizer of USTR and US Treasury Secretary Mnuchin. This negotiations which was held on the brink of the United States sanction in the form of tariff increase came to an end in just over three hours.
In December 2018, Trump and Xi agreed at a summit meeting that they would seek solutions to trade problems. The five-month ministerial-level talks reached agreement texts in seven fields such as China's industrial subsidy reduction, intellectual property right protection, currency policy transparency, etc. It had progressed to a stage where written texts corresponding in English and Chinese of up to 150 pages were reciprocally put together.
Trump had also suggested there could be early resolution, saying "a historical trade is near," but in May, the Chinese suddenly requested a review of the agreement. Mr. Trump, who received a report from Lighthizer, and was furious that "China broke his promise," and the negotiations in one go turned for the worse.
"Mr. Liu is under fire from the conservatives within the Communist Party." This was revealed in Beijing's diplomatic circle. After the last talks, in Beijing on May 1st during a discussion with people concerned in the party, which was being regarded as an informal process of quietly laying the foundation for the proposed changes, dissatisfaction erupted, "too much was given to the United States." In particular, there seemed to have opposition from state-owned business executives who felt their vested interests were threatened when industrial subsidies were to be reduced.
The mechanism in which local governments attracted industries with subsidies and let them compete for economic growth was the basis of China's “national capitalism”. It seemed that Mr. Liu, who was a reformist aiming at the market economy, had a desire to use foreign pressure as a leverage to innovate domestic economic reforms. However, Liu as Mr. Xi’s childhood friend who did not have local experience since birth, had envy being added on him and a strong rejection response was created.
On revising domestic laws in line with changes in industrial policy etc. and to be bound by an agreement with the United States on matters relating to national sovereignty, Mr. Xi himself also had a different tune. According to the Hong Kong newspaper South China Morning Post, Xi rejected the concession to the US put forward by Liu and others, saying that "I shall take up all the responsibility."
Even concessions might be given on trade issues such as the expansion of imports of agricultural products, matters that could shake the party rule of the Communist Party would never be given up. The US-China trade negotiations reached the final stage and hit the "bedrock" that was maintaining China's system.
After the ministerial-level talks, Mr. Trump emphasized in his post on Twitter that "it was a constructive talk. Negotiations will continue." But Munushin told reporters, "The schedule for the next round of talk is not decided," a sense of deadlock could be felt afloat.
Trump had re-emphasized his attitude to use tariff to threat, such as his posting that "the (fourth wave) procedure is starting” made during the discussion. The influence of Mr. Lighthizer, who had initially anticipated difficulties in negotiations with China, was also increasing within the administration, and there was a great possibility that it would lean further towards hard-line policy on China.
The impact of the fourth sanctions on the economy was greater than ever. According to UBS estimates, China's GDP growth rate would fall 1.6 to 2 points when the US put an additional 25% tariff on all Chinese products. China's economy, which showed signs of bottoming out due to economic stimulus measures, would rapidly decelerate again, and the US economy might also bounce back.
The US-China tariff war had already escalated into a scale that could not be justified by economic rationality, and it had begun to reveal the nature of the confrontation of future wars.
The above article by Nikkei has given readers a simple summary on the final phase of the Sino-US trade talk that was ended with a dead-lock.