CCTV News: US-China Trade Talks
This past week, U.S. and Chinese negotiators gathered in Washington, DC, for an annual series of trade talks between the two countries called the Joint Commission on Commerce and Trade (JCCT). I appeared twice on Chinese TV– on CCTV News’ Dialogue and BizAsia — to review some of the key issues that were discussed, and offer my take on what was actually accomplished.
I summed up the key takeaways from this year’s JCCT in a short Q&A session on BizAsia. As I mention, the two announcements that leapt out at me as significant were:
- China’s commitment to enter the WTO’s Government Procurement Agreement (GPA), or at least put forward a more plausible bid, by next year.
- China’s promise to crack down on software piracy, particularly within government offices and State-Owned Enterprises (SOEs).
Both would be important steps forward, but I especially emphasized the latter because software copyright enforcement in China is genuinely a national scandal, one that involves real harm to American interests. If you go into the office of most big SOEs, they’ve bought a licensed copy or two of Microsoft Windows and Office, but most of their computers are running pirated versions. In the past, these companies might have pled poverty, but these days, most are reporting record profits. There’s just no excuse for them not buying the real thing. And if highly visible state-run companies can engage in outright theft, what hope is there of making anyone else follow the rules? According to Reuters, U.S. officials believe that a 50% drop in software piracy in China would boost legal software sales by $4 billion. If China is really serious about making progress on this front, it sends a very positive message — but we’ve seen similar kinds of promises made before, so it’s going to be results, not words, that will matter.
The USD-RMB exchange rate wasn’t on the official JCCT agenda, but obviously this area of dispute loomed heavy in the background. Vice Premier Wang Qishan, who headed up the Chinese delegation, met in a separate meeting with U.S. Treasury Secretary Tim Geithner, and they presumably talked about currency. The most important development, however, took place outside the meetings, on Capitol Hill, when several Senators tried to tack a version of the provisions, already passed by the U.S. House, labelling China a “currency manipulator” and threatening special trade sanctions on China, onto the tax compromise bill. They failed, and it’s unlikely Congress will take any further action on this issue until next year. So while China and the U.S. didn’t reach any understanding on the exchange rate, effectively they’ve agreed to disagree for a little while longer.
They were planning to ask me a third question in the interview, before they ran out of time, about whether I saw this year’s JCCT meeting as a success or not — so I’ll answer that question here. What’s important to keep in mind is that this year’s JCCT is really just the first round of discussions. The next, more important round will take place when President Hu visits the White House next month. Viewed on their own terms, the accomplishments of this year’s JCCT are not all that outstanding, but in terms of building a positive foundation for next month’s summit, the outcome was very promising.
The previous night, I was on Dialogue discussing the broader context of the negotiations. You can watch the program here. Much of the ground has been covered before, but near the end of the show I made a couple of key points on the subject of U.S. export constraints on dual-use (military/civilian) technology to China. Lately, the Chinese have been pushing very hard for the U.S. to lower or end these constraints, arguing that such a move could help reduce America’s trade deficit with China. While the actual impact on the trade balance would probably not be that large, many U.S. companies argue that current rules don’t make sense. If they don’t sell certain high-tech products to the Chinese, they contend, their European competitors will.
There are two things to keep in mind, however. The first, I noted, is that the challenge for U.S. policymakers is as much bureaucratic as anything else. The current U.S. system was devised during the Cold War, and was mainly targeted at the Soviet Union. Since the U.S. did very little trade with the Soviets, it could afford to error on the side of not exporting. Congress and the Obama Administration need to develop a new system that better weighs the pros and cons on doing business.
The second, I point out, is the political environment. It’s generally recognized that the U.S. and China are both strategic partners and strategic competitors. If China is seen as a constructive partner on areas of concern like North Korea and Iran, Americans will be a lot less concerned about what kind of technologies are sold to the Chinese. If, on the other hand, China is perceived as a competitor or even a spoiler on these issues, Americans will be a lot more wary about what they sell to a potential adversary. This isn’t politicizing trade, it’s simply recognizing that the temperature of the relationship between our two countries matters. It’s all about comfort level.
On BizAsia, I also discussed the recent tax and spending compromise between President Obama and Congress, as well as continued efforts by European leaders to contain the Eurozone debt crisis. You can watch the clip of that interview here.