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White House Pushes Beijing To Roll Back “Made In China 2025” Initiative

Just hours after the White House revealed that it had extended exemptions on aluminum and steel import tariffs from the European Union, Canada, Mexico and several other countries, Nikkei reported Tuesday evening that China has presented the Trump administration with a plan to boost imports of aircraft, semiconductors and natural gas from the US to try and reduce its massive trade surplus.

However, Chinese officials are less enthusiastic about Washington’s demands that it scrap its “Made in China 2025” initiative to bolster high-tech manufacturing in several key sectors.

The report comes as Treasury Secretary Steven Mnuchin, top economic advisor Larry Kudlow, Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross and Trump advisor Peter Navarro head to Beijing later this week for the first round of face-to-face talks to try and end the trade war. They will meet with senior Chinese officials including President Xi and Vice Premier Liu He, China’s de facto economy czar.

Since shortly after announcing his candidacy for office, President Trump has railed against the US-China trade deficit, declaring that it was tantamount to handing billions of dollars to the Chinese every year.

CHina

The Trump administration’s demands regarding “Made in China 2025” could become a potential sticking point, as Chinese officials have expressed reservations about scrapping one of President Xi’s signature initiatives. The plan calls for building up 10 key high-tech areas of China’s manufacturing sector, including industrial robots and semiconductors.

China has presented the Trump administration with plans to boost aircraft, semiconductor and natural gas imports in response to American demands that the country reduce its trade surplus with the U.S. by $100 billion, according to the sources. Beijing is working to open its automotive and financial sectors further as well.

But trade frictions between the U.S. and China go even deeper. Washington’s greatest concern involves “Made in China 2025,” a senior White House official said, referring to Xi’s plan for building up 10 key areas of China’s manufacturing sector. They include industrial robots and semiconductors, an area in which China seeks to challenge the likes of Intel and Samsung.

“China increasingly threatens to dominate the industries of the future: artificial intelligence, autonomous vehicles, blockchain systems, robotics, high-tech ship manufacturing and more,” White House trade adviser Peter Navarro wrote in the Wall Street Journal last month. “Death by China” author Navarro, who thinks the country’s rise in high-tech manufacturing could lead to a military clash, was an influential voice behind the tariffs in response to alleged Chinese intellectual property abuses.

Navarro will accompany Mnuchin and the others to China this week. The U.S. wants Beijing to scrap the Made in China 2025 plan, a diplomatic source said.

With midterm elections looming in November, the Trump administration is eager to show progress on trade with China, a constant refrain during his run for the White House. But while Beijing is expected to offer ways to reduce the trade imbalance, it likely will refuse to reconsider its industrial self-sufficiency initiative.

As Nikkei points out, Beijing was initially reluctant to hold talks with the US. Beijing initially denied claims by senior Trump administration officials that informal talks had begun. But China has reluctantly agreed to participate to try and stave off a destabilizing trade war. 

The Trump administration’s plans for a historic summit with North Korea could complicate trade talks as China becomes increasingly worried about its former satellite state’s overtures to its Western rivals.

Trade problems with China also loom over the summit expected soon between Trump and North Korean leader Kim Jong Un, given that Chinese cooperation remains crucial to denuclearization of the Korean Peninsula. Some American officials think Beijing could link the North Korea nuclear issue to trade.

During an interview Thursday with CNBC from the Milken Conference, Ross confirmed that he’s optimistic about the talks – though he was careful not to prejudge the outcome. Ross added that the US is committed to holding China accountable both for its dumping of steel and aluminum, as well as its theft of US intellectual property. According to Nikkei, one reason the White House extended its exemption on tariffs for the EU is because it’s seeking the bloc’s help to hold China accountable for its IP practices.

Nikkei added that the EU and Japan intend to join the US in a WTO complaint regarding China’s institutionalized theft of intellectual property. Several American officials had advised Trump not to risk alienating the EU as it focuses on China, its primary target. The EU has also hinted at the prospect of a new trade deal with the US if it is granted a permanent exemption from the steel and aluminum tariffs.

Meanwhile, Lighthizer told the US Chamber of Commerce on Tuesday that the US isn’t seeking to change China’s state-controlled economic system. Rather, it’s merely hoping to open China’s economy to more foreign competition – something that Xi and He have committed to in recent talks where they declared that China would begin liberalizing its rules surrounding foreign automakers building and selling their wares inside China.

While trade concerns have largely receded over the past two weeks, investors will likely be watching closely for headlines from the talks. Furthermore, as the US seeks its detente with China, the Commerce Department is already preparing to open up yet another front in its international trade war. Case in point: Earlier today, the Commerce Department issued a preliminary determination to slap anti-dumping duties on imports of PET resin from Brazil, Indonesia, Taiwan, Pakistan and South Korea.