The long awaited U.S.-China Comprehensive Economic Dialogue (CED), which marked the end of the 100-Day Plan launched by President Trump and Chinese President Xi in Mar-a-Lago, took place on July 19. In an anti-climactic fashion, the talks did not yield any deliverables despite Commerce Secretary Ross’ statement in May touting the plan as accomplishing “more than has been done in the whole history of U.S.-China relations on trade,” when the “early harvest” of deliverables was released.

No Big Wins

There were no notable “wins” announced from the highly anticipated talks, and signs that the talks were faltering emerged early. The scheduled press conferences by the White House and the Chinese delegation were cancelled in the morning. In the afternoon, it was reported there would not be a joint statement, indicating no agreed outcomes from the talks. The U.S. and Chinese statements issued at the end of the CED showed some overlap in themes: both noted how reducing the trade deficit was a shared objective, though there was little substantive information beyond that. The Chinese called the talks a good “framework” for future bilateral economic cooperation, and Secretary Ross called the 100-Day plan a “work in progress,” noting that the bilateral process was moving into more in-depth issues that were inherently harder to solve.

Top Issues Raised: Export Controls and Reducing Overcapacity

The breakdown in talks was not surprising. Secretary Ross stated before the July 19 CED that the 100-Day plan focused on “low-hanging fruit.” Indeed, many issues in the initial results list had been agreed to in previous Strategic and Economic Dialogue sessions held under the Obama administration.

The priority issues identified by both sides during the CED provided little room for compromise. China’s top priority was export controls. This is an area where the Chinese know well the United States has little flexibility, and pushing on it may have indicated China’s unwillingness to move on the talks in general. There has been speculation that the stall also may have been due to political pressures from China, given the upcoming 19th Party Congress scheduled for late October/early November.

Meanwhile, the United States focused on reducing overcapacity, particularly on steel, and lifting restrictions on cloud computing and foreign equity caps on financial services and other services. The concern over restrictive cloud computing was especially a focus for industry after China released its latest cyber security law containing vague but highly restrictive rules for the sector.

The impasse that occurred in the CED on July 19 has carried over into the Trump administration’s subsequent debates on U.S.-China policy. The Chinese have implied that both sides are working on a one-year work program as a follow-on to the 100-Day Plan; U.S. officials deny this is the case. They will confirm only that “discussions continue” on where the U.S.-China relationship is headed next. Similarly, China would like to re-engage in negotiations on a bilateral investment treaty (BIT), a process the Trump administration has suspended. U.S. officials will only say that the administration has made no decision regarding the future of the BIT.

From Friend to Foe?

Since the Mar-a-Lago meeting, President Trump has praised Chinese President Xi Jinping, tying collaborative trade talks to China’s efforts to address North Korean aggression. However, after North Korea’s latest provocative long-range ballistic missile test, President Trump’s rhetoric has shifted. The President has blamed China for only talking and “doing NOTHING for us with North Korea.” China responded by saying that “the North Korea nuclear issue and China-U.S. trade … aren’t related. They should not be discussed together.”

Given the Trump administration’s willingness to employ all of the tools in the policy toolbox, speculation is growing that the White House may seek to impose additional economic actions against China in the weeks ahead. Options could include more trade cases being self-initiated by the U.S. Government against U.S. imports from China, or broadening economic sanctions in response to China’s alleged inaction against North Korea.

For more information, contact: Melissa Morris, Tracy Huang