Liu He faces major headwinds in trade meeting in U.S.

By Sara Hsu

Top Chinese economic adviser Liu He has been in the U.S. this week to discuss trade issues with Trump administration officials. Even as Liu has been in the United States, Trump's trade policies have become more aggressive, leaving little room for negotiation. Trump has failed to make good on his promise to get a better deal on Chinese trade, in large part because his administration has rejected the use of cooperation as a political tool. Undoubtedly, Liu faces major headwinds in his trade meeting with American officials.

Liu He, member of the Political Bureau of CPC Central Committee, listens during the annual meeting of the World Economic Forum in Davos, Switzerland, Wednesday, Jan. 24, 2018.[Photo: AP/Markus Schreiber]

Much to discuss

Liu met with U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and economic advisor Gary Cohn on Thursday in an attempt to reduce trade tensions. While the outcome of the meeting has not yet been released, U.S. tariffs on steel and aluminum announced the same day must have felt like a slap in the face. The meeting might have been a bit more genial, as it was balanced between free traders Cohn and Mnuchin and China hawk Lighthizer. Robert Lighthizer has previously labeled China an 'unprecedented' trade threat.

There are a number of trade issues at stake. Not only is there the potential for a trade war, with the U.S. imposing tariffs on several types of goods in recent weeks and anticipated U.S. action against Chinese intellectual property transfers, but there are also ongoing tensions due to the ever present U.S. trade deficit with China.

Tariffs placed on washing machines and solar panels in January were followed by tariffs on steel and aluminum this week, with China as a major target. China responded to the first set of tariffs by launching an anti-subsidy investigation against imports on American sorghum. In reaction to the most recent tariffs, China has expressed 'grave concern.' American action against China for intellectual property theft is also believed to be imminent. 

The trade deficit is also a sticking point between the two countries, as President Trump continues to lambast China for this imbalance. He has justified a trade war based on this, tweeting on Friday, 'When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!' The 'certain country' Trump refers to is China. Most unfortunately, he fails to understand that a trade deficit is not necessarily a bad thing, since trade is not a zero sum game, but a mutually beneficial arrangement between two countries. As a center country, the U.S. has been able to run a trade deficit for years with no trouble.

Land of no cooperation

Despite the presence of pro-free trade officials in the Trump administration, in recent weeks, it is the trade hawks who have earned the President's support. This is evidenced by Trump's recent actions against China on trade. In addition, Trump and his team have refused to cooperate on proposed deals that would limit China’s objectionable trade practices, rejecting China’s offer to reduce its steel overcapacity in 2017, allowing the top trade official to opt out of attending a steel summit aimed at reducing overcapacity, and turning down China’s offer to treat foreign financial firms more fairly.

Trump has shown a reluctance to hold extensive talks with China. The U.S.-China Comprehensive Economic Dialogue ended in cancelled press conferences last summer after the two nations failed to reach an agreement about the U.S. trade deficit with China. Talks were stalled through the rest of the year. The United States has tentatively agreed to resume the dialogue this year, although a date hasn’t been set. It is not clear how earnestly the Trump administration will participate in this meeting.

The Trump administration’s attitude toward China has been quite negative, from the time of Trump’s campaign until the present purported trade war. The only real highlight is that Donald Trump likes and admires President Xi Jinping, and there may be hope that some negotiation can be carried out between the two heads of state.

For his part, Liu He faces major barriers to negotiating with the Trump administration. It remains to be seen whether the meeting will result in positive outcomes; if so, it would be a major triumph for Liu, who is expected to soon be named Vice Premier, and a productive result for the Trump presidency, which has shown that it can be tough on China but not necessarily cooperative with the Asian nation. Liu’s conversation with top U.S. officials will set the tone for the Comprehensive Economic Dialogue and other talks to be held this year.

(Sara Hsu, associate professor, the State University of New York at New Paltz)