Chinese to rebuff Trump on trade

Talks ruled out on top demands

BEIJING -- China says it will refuse to discuss President Donald Trump's two toughest trade demands when U.S. officials arrive in Beijing this week, potentially derailing the high-level talks.

The Chinese government is publicly calling for flexibility on both sides. But senior officials in China do not plan to discuss the Trump administration's two biggest demands: a mandatory $100 billion cut in the United States' $375 billion annual trade deficit with China and curbs on China's $300 billion plan to bankroll the country's industrial upgrade into advanced technologies such as artificial intelligence, semiconductors, electric cars and commercial aircraft.

The reason: China feels its economy has become big enough and resilient enough to stand up to the United States.

A half-dozen senior Chinese officials and two dozen influential advisers laid out the Chinese government's position in detail during a three-day seminar that ended in Beijing late Monday morning. A handful of foreign writers were invited from around the world to make sure China's stance would be known overseas. All of the officials and most of the advisers at the seminar insisted on anonymity because of diplomatic sensitivities.

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It is not clear what will happen when the two sides sit down this week or whether either will find a reason to waver. Still, the Chinese and U.S. positions are so far apart that China's leaders are skeptical a deal will be possible at the end of this week. They are already raising the possibility that Chinese officials may fly to Washington a month from now for further talks.

"I don't expect a comprehensive deal whatsoever," said Ruan Zongze, executive vice president of the China Institute of International Studies, which is the policy research arm of China's Foreign Ministry. "I think there is a lot of game-playing here."

The Chinese government is frustrated with Trump's threats to impose tariffs on $150 billion in Chinese goods and dismayed by suggestions in the West that China has a weak bargaining position. Chinese officials believe the country's one-party political system and President Xi Jinping's grip on power -- particularly after the repeal of presidential term limits in March -- mean that China can outlast the United States and Trump in any trade quarrel.

The Chinese government believes Trump's background as a businessman means that at some point he will agree to a deal. Seminar participants also reaffirmed previous Chinese trade policy offers to further open the country's financial and automotive sectors. They also suggested that China would be willing to tighten its intellectual-property rules so as to foster innovation within China as well as protect foreign technologies from counterfeiting and other illegal copying.

China is insisting that the parameters of any deal be limited, and that the tariff threat be removed before a final deal can be struck.

Chinese officials have reached out to Treasury Secretary Steven Mnuchin, who has reacted positively to China's overtures in the auto and financial sectors. Mnuchin, a former Goldman Sachs executive who will be on the Trump administration's team in Beijing later this week, has sought to calm investors worried that the rhetoric between Washington and Beijing could break out into a full-blown trade war.

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China's position is that the bilateral trade imbalance arises from differences in savings rates. Households in China save roughly two-fifths of their incomes. Americans, on average, save almost nothing. So money from China tends to flow to the United States, buying factories, technology companies, real estate and more, and Americans in turn spend much of that money to buy goods from China. Many economists in the United States, including some at the Treasury Department, share that view.

By contrast, many trade lawyers, lawmakers on both sides of the aisle and Trump contend that the trade deficit stems to a large extent from unfair trade practices, including cheap loans by state-controlled banks to exporters.

China is ready to discuss shrinking the $375 billion annual trade deficit. But it wants to do so by buying more high-tech U.S. goods, which Washington has long blocked because of concerns that they may have military value, and by buying more fossil fuels and other goods from the United States.

China is not ready to discuss a mandatory $100 billion reduction in the annual deficit, as the administration has suggested.

A senior Chinese government official said that China is unwilling to negotiate with the United States on any curbs on China's industrial policy, which includes large-scale government assistance to favored industries in advanced-technology manufacturing. China perceives the U.S. demands for curbs on industrial policy as an attempt to stop China's economic development and technological progress, the senior Chinese official said.

Germany and other countries also have industrial policies, and the United States has not objected to them, he added. U.S. and European officials have argued that those policies elsewhere are much narrower and less ambitious.

Other advisers and officials said the United States had misunderstood the Made in China 2025 industrial policy. They expressed hope that it might be possible to resolve differences by explaining the program better and making very small tweaks to it -- a stance that still may not appease the Trump administration.

The Chinese government is not simply throwing money, land and other resources to favored industries like robotics, artificial intelligence, semiconductors and aircraft manufacturing, they said. China is engaged instead, they contended, in a carefully thought-out program that measures potential profits for each dollar of investment. So China's program bears some resemblance, they said, to private-sector investment programs in the West.

One subject was avoided by all officials throughout the seminar, even when advisers occasionally speculated about it: whether China might someday try to link trade disputes to national security issues.

China has been deeply involved in international pressure on North Korea to give up its nuclear weapons and ballistic missiles, an issue of high importance to the Trump administration. China also wants to someday assert control of Taiwan, a self-governing democracy that China regards as a renegade territory.

Tsinghua University's new Academic Center for Chinese Economic Practice and Thinking organized the seminar, which was held at Tsinghua and two other venues in western Beijing. Xi graduated from Tsinghua, which is in Beijing and is China's top university, and he has filled much of the senior ranks of his government with Tsinghua professors and graduates.

METAL TARIFFS DELAYED

Also on Monday, senior administration officials said Trump has decided to postpone for another month the decision about whether to impose steep tariffs on steel and aluminum imported from Canada, Mexico and the European Union.

The decision came just hours before the previous temporary tariff exemption was set to expire.

Trump ordered the tariffs of 25 percent on imported steel and 10 percent on aluminum March 22, citing a threat to national security and making plain that he intended to use the duties as leverage to win concessions from American trading partners.

The Trump administration said that it had reached an agreement in principle with three other countries that had received a similar tariff exemption -- Australia, Argentina and Brazil -- and that these deals would be finalized in the next 30 days.

Information for this article was contributed by Keith Bradsher of The New York Times, and by Don Lee of Tribune News Service.

A Section on 05/01/2018

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