SinoTech: U.S.-China Trade Talks in Beijing Conclude Without Meaningful Progress on Structural Issues

Last week, American and Chinese officials held trade talks in Beijing over a five-day period. From Feb. 11 to Feb. 13, a lower-level American delegation, led by Deputy U.S. Trade Representative Jeffrey Gerrish, focused on “technical details” and on the question of enforcement of any possible trade agreement. Feb. 14 and Feb. 15 saw high-level talks between Chinese Vice Premier Liu He and U.S. Trade Rep. Robert Lighthizer and Treasury Secretary Steven Mnuchin. President Xi Jinping met with Lighthizer and Mnuchin on Feb. 15 and noted that “important progress” had been made.

President Trump and Secretary Mnuchin both cast the Beijing trade talks as “productive.” Trump had previously indicated that he might be willing to let the March 1 deadline for a trade agreement “slide for a little while” if both sides made substantial progress. If Trump sticks with the deadline, however, the U.S. tariff rate on $200 billion worth of Chinese imports will rise from 10 to 25 percent.

Despite Trump’s optimism, negotiators in last week’s talks did not make serious progress on addressing structural issues such as intellectual property theft, Chinese subsidization of state-owned enterprises and forced technology transfer. Beijing has pledged to increase purchases of an array of U.S. goods—from semiconductors to energy products. Such moves could assuage Trump if he prioritizes reducing the bilateral trade deficit over structural reforms. Last month, Trump greeted news of Chinese purchases of U.S. soybeans as a “fantastic sign of faith.” But, as several China analysts have argued, Trump’s focus on the bilateral trade deficit means that a “sustainable and long-term agreement on structural reform in China” could well slip through the cracks.

A side-by-side comparison of the official U.S. and Chinese statements on last week’s trade talks indicates that American and Chinese negotiators still have a slate of key issues to tackle. A statement from Chinese state media agency Xinhua on the trade talks proclaimed that the two sides “reached consensus on major issues and had specific discussions about a memorandum of understanding on bilateral economic and trade issues.” The White House statement, however, did not refer to a consensus, cautioning that “much work remains.”

On Saturday, Feb. 16, as Trump received a briefing on the trade talks at Mar-a-Lago, Vice President Pence delivered a fiery speech at the Munich Security Conference. Pence argued that “we cannot ensure the defense of the West if our allies grow dependent on the East,” singling out the “threat posed by Huawei and other Chinese telecom companies.” Pence’s uncompromising comments follow Secretary of State Mike Pompeo’s warnings that the U.S. might have to decrease cooperation with European countries that continue to do business with Huawei.

This week, Lighthizer and Liu will lead their respective trade delegations into another round of high-level trade talks in Washington, D.C. Some have questioned whether the two sides will be able to reach an agreement without a personal meeting between Trump and Xi. What remains certain is that Trump’s optimism is but a small part of a complex picture. The lack of headway on resolving structural issues and an emerging multi-agency, bipartisan consensus that the U.S. needs to act tough on China could imperil Trump’s chances of getting to yes on a comprehensive agreement.

Trump Administration Puts Forward New AI Strategy

As competition in emerging technologies moves to the forefront of the U.S.-China relationship, observers have lamented that the U.S. government lags behind China in a strategic approach toward artificial intelligence (AI) research. The Trump administration is now attempting to correct course. On Feb. 11, Trump released an Executive Order on Maintaining American Leadership in Artificial Intelligence. The order establishes AI as a federal research and development priority and creates a coordinated strategy under the American AI Initiative. This initiative will focus on five areas for U.S. leadership: technological breakthroughs, establishment of technical standards, training and skill development, promotion of “public trust and confidence” in new technologies, and an “environment that supports American AI research and innovation.” The order did not specify sources or amounts of funding. Precise numbers are difficult to determine on the U.S. government’s current AI budget across all agencies.

Competition with China appears to be an underlying theme of the new AI strategy, although neither the executive order nor an accompanying op-ed in Wired by Deputy U.S. Chief Technology Officer Michael Kratsios explicitly mentions the topic. The Wired op-ed stressed American commitments to human rights and privacy, explaining, “[W]e will win the race for AI, and we will do it without compromising our American values.” Meanwhile the executive order articulated the need “to protect the advantage of the United States in AI and technology critical to United States economic and national security interests against strategic competitors and foreign adversaries.” In contrast, the Summary of the 2018 Department of Defense Artificial Intelligence Strategy, also released last week, noted the “significant investments in AI for military purposes” made by both China and Russia. The report highlighted AI applications in defense and the potential effect of AI on new capabilities.

The Chinese government is already spending heavily on AI research and development at the national and municipal levels. Exact figures have not been disclosed, but a recent report from the Center for a New American Security states that the budget “is clearly in the tens of billions of dollars,” including nearly $30 billion pledged for AI funds by the cities of Shanghai and Tianjin alone. According to the State Council’s Next Generation Artificial Intelligence Development Plan, the Chinese government aims to achieve “world-leading levels” in AI by 2030 and have core industries in the field be worth more than $150 billion. While the Chinese government is making considerable strides in AI research and investment, Chinese academics have also raised concerns about whether the technology could drive a Cold War-style arms race.

In Other News

• The New York Times reported that cyber intrusions from China and Iran against U.S. companies and government agencies have been mounting. While commercial cyber espionage emanating from China had decreased somewhat during the later years of the Obama administration, recent targets have included companies such as GE Aviation, T-Mobile and Boeing. According to the Times, the deterioration in trade relations between the United States and China as well as the Trump administration’s withdrawal from the Iran nuclear agreement may have contributed to increasing tensions and resulted in an uptick in cyberattacks.
• According to a Financial Times report, the United Kingdom’s National Cyber Security Centre believes there are ways to mitigate the risks associated with using Huawei for the construction of 5G mobile networks. This finding led some cybersecurity experts to wonder whether other nations would be reassured by the United Kingdom’s determination and adopt Huawei systems. Amidst the ongoing turmoil surrounding Huawei’s role in international 5G networks, the company’s founder, Ren Zhengfei, announced in an interview with the BBC on Feb. 18, “We still trust in the UK, and we hope that the UK will trust us even more .... Because if the US doesn’t trust us, then we will shift our investment from the US to the UK on an even bigger scale.”
• The Chinese Communist Party is intensifying its efforts to use new media to improve the party’s image among millennials, according to the South China Morning Post. The report coincided with the launch of a new app called Study the Great Nation created by the party’s Propaganda Department, which provides a slew of content on Xi Jinping thought and government policies including quizzes, video and quotes. It has already become the most downloaded app in the Chinese Apple app store, although this may partially be attributable to party members being pressed to install the app. The app’s Chinese name, xuexiqiangguo (学习强国), is a pun off of the word for study and Xi Jinping’s surname.
• New Zealand has raised concerns about the government’s decision to ban Huawei from constructing 5G mobile networks in the country may be harming relations more broadly, according to the Times. New Zealand and China have historically enjoyed strong relations in areas such as trade, tourism and student exchange. Earlier this month, Chinese officials abruptly canceled the launch of the 2019 New Zealand-China Year of Tourism. New Zealand-based exporters to China also cited “non-tariff impediments” as another sign that technology disputes could be spilling over into other forms of economic pressure. Meanwhile, Huawei recently launched an advertising campaign in the country with slogans such as “5G without Huawei is like rugby without New Zealand.”
• A Dutch security researcher announced that a database used by facial recognition company SenseNets in Xinjiang, an autonomous region in western China, was available online without additional security. The database contained extensive details on more than 2.5 million users including names, ID card information, photographs and an accompanying list of users’ GPS coordinates. Use of facial recognition software to surveil Xinjiang’s Uighur Muslim population has become a growing source of concern as repression in the region mounts. After the exposure, SenseNets secured its database.

Commentary

Following President Trump’s executive order directing federal agencies to support AI development, a number of analysts have addressed the security threats that China poses as well as the global security challenges that China itself faces. Amidst the backdrop of continued scrutiny of Huawei, many analysts have focused on technological competition between the United States and China. Robert Strayer, deputy assistant secretary of state for cyber and international communications, spoke at the Center for Strategic and International Studies on “security risks to emerging 5G networks.” He warned that Chinese state practices “should give us pause about the way that country might use data in the future.” On Wired, Michael Kratsios, a top technology advisor to President Trump, argues that despite the challenges ahead, “we will win the race for AI, and we will do it without compromising our American values.”

On Lawfare, Colin Clarke and Mollie Saltskog address U.S.-China security questions in the Middle East, arguing that American withdrawal from Syria presents China with an opportunity. Beijing, they contend, will “fold yet another state outside its traditional sphere of influence into its economic and security paradigm.” Writing for the National Interest, the same authors highlight the security threats that could disrupt China’s Belt and Road Initiative. The Munich Security Conference also sparked wider discussion of China-related security issues. China rejected German Chancellor Angela Merkel’s appeal to join the Intermediate-Range Nuclear Forces (INF) Treaty; the Chinese state-sponsored Global Times argues that Merkel’s call was “inappropriate” and that China’s nuclear power is “far from ... equal to those of the US.” And writing for the Washington Post’s Made by History series, James Clifton warns that China, “free to develop weapons that the United States and Russia cannot,” poses a “security concern for the Americans and Russians alike.” China has developed a large missile stockpile, an estimated 95 percent of which would be inconsistent with the INF Treaty, according to Admiral Harry Harris, the U.S. ambassador to South Korea.

Finally, in light of this week’s trade talks in Washington, a number of China watchers have weighed in on the future of U.S.-China relations. Gordon Chang provocatively argues that “disengagement is the only strategy with China that has not yet failed” and that the U.S. at some point will “disengage its economy from China’s.” Taking a more measured approach, a South China Morning Post (SCMP) op-ed by Wang Xiangwei suggests that “China is unlikely to accede to U.S. demands to stop providing subsidies ... for favored industries.” Also writing in the SCMP, Zhang Lin similarly warns that “any trade deal will not be the end of hostilities between the two powers, but rather will be the end of the beginning of a prolonged rivalry.” Finally, in the Brookings Order from Chaos blog, Ryan Hass and Mira Rapp-Hooper identify seven key questions that the “China-facing policy community is now debating” and conclude that “there is not yet unanimity on the ... objectives for U.S. strategy with China and in Asia.”