On December 12, the Institute for China-America Studies (ICAS) held a public event to discuss the outlook for U.S.-China trade ties following the meeting of the U.S. and Chinese presidents the G20 meeting in Buenos Aires, Argentina. From the meeting came a 90-day trade truce declared by the two sides in the current trade war. Dr. Mary Lovely, a non-resident senior fellow at the Peterson Institute for International Economics and a professor of economics at Syracuse University, was the featured presenter. Dr. Ellen Frost, a senior adviser and fellow at the East-West Center in Washington, D.C., moderated a discussion thereafter featuring Dr. Lovely and Mr. Sourabh Gupta, an ICAS senior fellow.
In her leading remarks, Dr. Lovely touched upon the three main trade policy-related frictions in U.S.-China ties: (a) the U.S.’ large trade deficit with China, (b) complaints regarding coerced technology transfers and intellectual property rights (IPR) practices, and (c) the conjunction of bilateral high-technology trade and investment with national security concerns. With regard to the trade deficit, Dr. Lovely observed that the bilateral imbalances will persist, given the macroeconomic drivers of the deficit and the supply chain dynamics of regional production in Asia. On the other hand, U.S. complaints related to coerced technology transfer and IPR violations, while complicated, are amenable to a negotiated resolution. China has already substantially liberalized its foreign inward investment regime, including notably its equity caps and joint venture requirements that have touched-off criticism of late. And as a more innovation-centered China ascends the high-technology, manufacturing value chain ladder, it will have an even greater national interest in bringing its IPR practices fully up-to-speed with global norms. The conjunction of bilateral high-technology trade and investment with national security concerns, however, will remain a hard nut to crack well into the future. Security concerns about China’s role within technology-enabled global supply chains is still at an incipient stage. Both the pervasive digitization of modern life as well as the changing role of China within innovation networks – China is no longer just an assembler; it is also a designer and producer of innovation goods – doesn’t make addressing this national security-related challenge any easier.
The discussion segment of the event dwelt on the prospects for success or failure of the Buenos Aires meeting, going forward. There was a consensus among discussants that the bombshell detention of Huawei’s chief financial officer, Sabrina Meng Wanzhou, in Vancouver was a significant setback to the near-term outlook. The detention and arrests posed important questions as to the integrity and political sustainability of realizing the commitments that were arrived-at in the Xi-Trump meeting on December 1st. Of equal concern was the fact that U.S. Justice Department-led law enforcement operations that single out Chinese technology companies could undermine, going forward, the very predictability of the rules-of-the-road in terms of leveling the playing field in the area of bilateral high-technology commerce and cooperation. The panelists agreed that U.S.-China trade, IPR and investment ties are too fluid at this time to make any reasonably accurate prediction of the state-of-play 90 days hence – or for the matter even 6 months hence. Judgment should be reserved for the time being. Excess optimism though is certainly not warranted.
This having been said, there was broad agreement that China would be best served by continuing to liberalize its foreign inward investment regime, including treating all businesses registered in China – foreign-included – equally. China should also frame and enforce current and future domestic industrial policy initiatives on more pro-market terms. Liberalization of service sector barriers, where much of U.S. export growth is concentrated, would also be a net-plus for both sides.
