How China's move jeopardizing trade talks can hit businesses and global economy

US and China have been locked in talks to resolve tensions that have seen both of them impose tariffs on goods worth USD 360 billion.

On late Friday night, diplomatic cable from China arrived in Washington with systematic edits to a nearly 150-page draft trade agreement, according to three US government sources and three private sector sources briefed on the talks. The document was riddled with reversals by China that undermined core US demands in trade talks, the sources told Reuters.

This move by China can jeopardise the progress made after weeks of trade negotiations between US and Chinese officials and bring back the pressure on businesses facing an uncertain future due to the geopolitical tensions. The countries have been locked in talks to resolve tensions that have seen both of them impose tariffs on goods worth USD 360 billion.

The US President Donald Trump had last week warned of increased tariffs on USD 200 billion worth of Chinese goods, although it is not yet clear which categories of goods will be targetted, going by the previous stance of US, the steel sector is likely to bear the brunt. Machinery, semiconductors and other technology-related products might also be subjected to the US tariffs.

China has not yet threatened any retaliatory tariffs after Trump's threat but more talks are planned this week that is likely to make the situation clearer. China's Vice Premier Liu He is set to arrive in Washington on Thursday for two days of talks that just last week were widely seen as pivotal – a possible last round before a historic trade deal.

HOW IT ALL STARTED?

After years of steadily rising US trade deficits with China, US complaints that Beijing has systematically obtained American intellectual property and trade secrets through coercion and outright theft, the Trump administration last year demanded fundamental changes to China's economic model to allow US companies to compete on a more level playing field.

These include an end to policies that Washington claims effectively force US firms to transfer their technologies to Chinese partners and full protection for American intellectual property rights.

TECHNOLOGICAL THREAT

At the most basic level, a dominant position in future high-technology industries, is at stake in these negotiations, according to the US Trade Representative's office.

China is determined to upgrade its industrial base in 10 strategic sectors by 2025, including aerospace, robotics, semiconductors, artificial intelligence and new-energy vehicles.

The US officials say they don't have a problem with China moving up the technology ladder, but they don't want it to happen with stolen or unfairly obtained American know-how. They argue that China's massive support for state-owned enterprises is leading to overproduction, making it hard for US companies to compete on a market-driven basis.

Chinese officials generally view the US actions as a broad effort to thwart China's inevitable rise to a dominant position in the global economy. They deny that China requires or coerces technology transfers, saying that any such actions are commercial transactions between American and Chinese firms.

IMPACT ON GLOBAL ECONOMY

The tit-for-tat trade dispute between China and the United States may do little to protect domestic producers in either country and could have "massive" implications on the global economy unless it is resolved, United Nations experts had warned earlier this year.

A UNCTAD study had also warned that the spat could hit East Asian producers the hardest, with a projected USD 160 billion contraction in the region's exports unless discussions between China and the US are resolved.

But there are some winners as well, European Union members, Japan, Canada, meanwhile, will see exports increase by more than USD 20 billion each. Other countries that are set to benefit from the trade tensions include Australia, Brazil, India, Philippines, Mexico and Vietnam.

Although these figures do not represent a large slice of global trade, which was worth USD 17 trillion in 2017, for countries like Mexico the increase in exports will amount to a six per cent rise in exports overall.