April 10, 2018 / 6:20 AM / 3 months ago

Breakingviews - Xi throws the trade ball back into Trump’s court

HONG KONG (Reuters Breakingviews) - China’s president Xi Jinping is throwing the trade ball back into Donald Trump’s court. Xi pledged yet more market opening on Tuesday. He rehashed plenty of old promises but dangled a few substantive ones on autos and other areas – and suggested they could happen quickly. The still-vague opening offer is unlikely to appease U.S. hardliners – or even moderates in the U.S. business community. But they do create space for President Donald Trump to justify continued negotiations.

Chinese President Xi Jinping applauds after the parliament passed a constitutional amendment lifting presidential term limit, at the third plenary session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China March 11, 2018. REUTERS/Jason Lee

Xi’s most substantive pledges were aimed squarely at the auto sector, a key U.S. constituency. The People’s Republic will raise foreign ownership limits in the industry “as soon as possible”, Xi said, and cut duties on imported vehicles. More vaguely, he pledged further protections of foreign intellectual property and said China would expand imports.

The speech lent little support to those arguing Xi is becoming a true leader on free trade. It also risks engendering more “promise fatigue”. For example, Xi suggested China would shorten the so-called “negative list” of sectors off-limits to foreign investment, a oft-repeated commitment that has become a symbol of Chinese legerdemain within the foreign business community. Xi also mentioned exploring “free trade ports,” suggesting regulators will keep trying to buy off critics with insubstantial reform petri dishes. There was no mention of addressing the industrial policies that aim to substitute foreign imports with local brands or curbing broader state intervention in the economy. Hawks like U.S. Trade Representative Robert Lighthizer will likely see the package as a risible low-ball offer.

Even so, the speech dangles a carrot as an alternative to Beijing’s retaliatory stick, and provides a real opportunity for Trump to delay, at least, embarking on a tariff battle that even his own business lobby doesn’t want to fight. Financial markets rallied after the speech.

Taking Xi’s conciliatory gesture for what it is - a low baseline for more negotiations – would allow Trump to claim a victory on Chinese auto tariffs while continuing to haggle for better concessions and clear implementation deadlines. The administration would be right to be skeptical of promised Chinese reforms coming “soon”. But as an opening move, it’s worth entertaining.

Breakingviews

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