The United States and China launch a critical round of trade talks today amid deep differences over US demands for structural economic reforms from Beijing that will make it difficult to reach a deal before a March 2 US tariff hike.
The two sides will meet in Washington, next door to the White House, in the highest-level talks since US President Donald Trump and Chinese President Xi Jinping agreed to a 90-day truce on their trade war in December.
People familiar with the talks and trade experts watching them say that, so far, there has been little indication that Chinese officials are willing to address core US demands to protect American intellectual property rights and end policies that Washington says force US companies to transfer technology to Chinese firms.
The US complaints, along with accusations of Chinese cyber theft of US trade secrets and a systematic campaign to acquire US technology firms, were used by the Trump administration to justify punitive US tariffs on US$250 billion (RM1,027 billion) worth of Chinese imports.
Trump has threatened to raise tariffs on US$200 billion worth of imports to 25 percent from 10 percent on March 2 if an agreement cannot be reached. He has also threatened new tariffs on the remainder of Chinese goods shipped to the United States.
"Clearly on the structural concerns, on forced technology transfer, there remains a significant gap if not a wide chasm between the two sides," a person familiar with the talks told Reuters.
Chinese officials deny that their policies coerce technology transfers. They have emphasised steps already taken, including reduced automotive tariffs and a draft foreign investment law that improves access for foreign firms and promises to outlaw "administrative means to force the transfer of technology".
A crucial component of any progress in the talks, according to top administration officials, is agreement on a mechanism to verify and "enforce" China's follow-through on any reform pledges that it makes. This could maintain the threat of US tariffs on Chinese goods in the long term.
Some business groups watching the talks were tempering expectations for a breakthrough this week.
With a month to go before the deadline, it is unlikely that the best offers from either side would be put on the table in the next two days, said Erin Ennis, senior vice-president of the US-China Business Council.
"I don't think there's going to be any big outcome," Ennis said of the talks scheduled for today and tomorrow. "Hopefully they make some good progress that will set them up to be able to get to completion at the end of the 90 days."
But the Chinese side, led by Vice-Premier Liu He, would likely have to bring to the table a new offer that goes significantly beyond its previous offers to significantly increase purchases of US goods, including soybeans, energy and manufactured goods.
People familiar with the talks said manufactured goods, a key priority for the Trump administration, were among the largest components of Chinese purchase pledges aimed at significantly reducing the US trade deficit with China. But here, too, there are "no guarantees" that Beijing would follow through on these pledges, one of the people said.
Also hanging over the talks are US indictments against Chinese top telecommunications equipment maker Huawei Technologies Co, accusing it of bank and wire fraud to evade Iran sanctions and conspiring to steal trade secrets from T-Mobile US Inc.
US treasury secretary upbeat
US Treasury Secretary Steven Mnuchin, one of the Trump administration's strongest advocates for a deal with China, made upbeat comments about the talks for the second day in a row yesterday, saying on Fox Business Network that he expects "significant progress" on market access and technology transfer issues. He insisted that the Huawei case and trade talks were "separate issues".
Meanwhile, earnings warnings from US companies hit by the slowdown in China's economy - due in part to the tariffs - are piling up. 3M Co joined Caterpillar, Nvidia and Apple to blame weakening Chinese demand for revenue and profit shortfalls.
It will get worse for both US and Chinese firms and financial markets if Washington and Beijing cannot show enough progress to at least delay the March 2 tariff deadline, said Nicholas Lardy, a senior fellow and China trade expert at the Peterson Institute for International Economics in Washington.
"Given the weakness in the Chinese economy and the fact that the US will certainly be slowing down, that's not a pretty picture," Lardy said.