When President Trump travels to China later this year to begin phase two of trade talks with Beijing, there’s one thing that a lot of people are hoping to see come out of the negotiation: clarity on what happened in phase one.
The White House has claimed that phase one covered financial services, currency manipulation, intellectual property rights, and forced transfers of technology. The fine print of the deal, however, has not been made public. Beijing officials are scheduled to be in Washington on Jan. 13 to sign that part of the agreement.
“From a substantive standpoint, we want to see what the deal looks like,” said Ed Brzytwa, director of international trade for the American Chemistry Council, a trade association. “If phase one doesn’t address those issues, then we want to make sure that phase two does.”
He added that he also wanted clarity on the tariffs the administration has imposed on $550 billion worth of Chinese goods. The supposed purpose of the levies was to force Beijing to make a deal, but the White House has thus far only marginally rolled them back. “Our industry has suffered from the imposition of the U.S. tariffs and the Chinese retaliatory ones,” Brzytwa said.
The Trump administration has long claimed that Beijing has wiggled out of past promises to reform its predatory trade practices. Officials such as U.S. Trade Representative Robert Lighthizer said current talks needed to result in serious commitments from Beijing in writing to change its policies before a deal could be reached and the tariffs lifted.
That demand was the underlying issue behind a breakdown in negotiations in May. The White House claimed that Beijing tried to walk back commitments it had made earlier in the talks, a charge Chinese officials denied. A widely held theory among trade policy analysts is that higher-ranking officials in the Chinese Communist Party stepped in late in the process and overrode their negotiators.
Many in the business community were surprised when the White House said in mid-December that phase one covered several complicated issues since it had previously indicated that those would be handled in later phases. “Financial service reform, currency reform, intellectual property rights reform, forced transfer of technology reform — all of the key chapters have been covered in this deal,” White House economic adviser Larry Kudlow told reporters.
Exactly how is unclear. “As far as I know, phase one details have not been made public. A good question is whether the full text will be made public even after it is signed,” said Derek Scissors, a resident scholar at the American Enterprise Institute.
A White House official confirmed the information was being kept under wraps and gave no timeline for its release. Trade groups speculate that it might be revealed after the signing.
One of the trickiest issues in the talks is that of “forced technology transfers.” A long-standing complaint of U.S. businesses and the White House is that China makes foreign access to its markets contingent on companies partnering with local Chinese companies. It places foreign companies in the position of having to share trade secrets with their partners and then potentially losing them.
“By forcing foreigners into a joint venture partnership relationship, what Beijing does is force the joint venture partner to say, ‘I won’t partner unless you transfer technology,'” said William Reinsch, who holds the position of Scholl chair in international business for the Center for Strategic and International Studies.
Part of the problem in these cases is that Beijing does not explicitly require domestic companies to turn over information. “A colleague of mine said there are only two types of business in China: the ones that are owned by the government and ones that shut up and do what the government tells them to do,” Reinsch joked.
This degree of removal between Beijing and Chinese companies had made addressing the technology transfer issue difficult. Beijing has countered accusations of theft by arguing that the U.S. companies willingly shared data with their Chinese partners as part of a deal for market access. How phase one addresses the problem is unclear.
In one high-profile case, chemical company DuPont became concerned that trade secrets involving an essential textile product produced from corn were lost and filed patent infringement cases against its Chinese joint venture partner Zhangjiagang Glory. As part of an alleged antitrust case related to the dispute, Chinese officials raided DuPont’s Shanghai offices in 2017 and confiscated documents and computers. DuPont officials told the Wall Street Journal last year the raid was a bid to get it to drop its claims against the Chinese company.
The difficulty in addressing such cases may explain why the administration has barely budged on lifting tariffs, said Simon Lester, trade policy analyst for the free-market Cato Institute. “I think the Trump administration wants China to spell out the actions it will take in detailed implementing regulations and wants to see how implementation is going before committing to get rid of the tariffs,” he said. “Passing new laws is not enough by itself.”
