It was a bizarre few days in the continuing saga of the China-U.S. trade war.
As of Friday, representatives for the two countries had “made headway on specific issues and the two sides are close to finalizing some sections of the agreement,” according to the Office of the U.S. Trade Representative.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchen talked by phone on Friday with Chinese Vice Premier Liu He. Later, President Trump told reporters the talks were “moving along nicely.”
Various reports have indicated that latest talks are centered on how tough the U.S. will be with China over protecting intellectual property of U.S. companies and preventing Chinese companies from forcing U.S. companies to transfer technology to Chinese companies in order to do business there.
Many U.S. companies have hoped for such provisions but there is also the nagging concern that major companies want to keep their ability to sell billions of goods and services to China, including the NBA, which has a larger basketball audience in China than the U.S.
Vice President Mike Pence stepped into the mess in a speech on Thursday by criticizing American companies and the NBA specifically for “siding with the Chinese Communist Party” by suppressing support for the pro-democracy movement in Hong Kong.
“By exploiting corporate greed, Beijing is attempting to influence American public opinion, coercing corporate America. And far too many American multinational corporations have kowtowed to the lure of China’s money and markets by muzzling not only criticism of the Chinese Communist Party, but even affirmative expressions of American values,” he said.
Basketball giant Charles Barkley, now an analyst for Inside the NBA, later said in on-air comments, “Vice President Pence needs to shut the hell up. All American companies are doing business in China.”
It’s hard to imagine a major U.S. semiconductor maker CEO taking on the role of Barkley in this spat, but major multinationals are clearly torn over how hard to push for IP protections when so much money can be made in China. The world’s two largest economies are already so entrenched that recent talk of “decoupling” the two economies seems outrageous to some. Even Vice President Pence said the Trump Administration is not seeking to “decouple” the two economies, but instead build a relationship that is based on mutual candor.
“The United States seeks engagement with China and China’s engagement with the wider world, but engagement in a manner consistent with fairness, mutual respect and the international rules of commerce,” Vice President Pence said. “But, so far, it appears the Chinese Communist Party continues to resist a true opening or a convergence with global norms.”
In the end, the trade talks are clearly much bigger than the issues of IP protection that are so important to electronics companies, but the talk of decoupling economies seems to have scared at least some business leaders.
“Multinationals can’t afford to walk away” from China, said Steve Odland, the CEO of The Conference Board and past CEO of Office Depot and other companies in an interview discussion on CNBC.
“A decoupling is going to happen anyway,” countered Atlantic Council CEO Fred Kempe. “The Chinese are doing it and they are calling off some of their people from doing deals with the U.S., and I’m hearing a lot about that.”
U.S. Rep. Kevin Brady, R-Texas, acknowledged in a separate CNBC interview that U.S. companies have always faced a trade-off when doing business in China. “We have a moment in time here where can re-set that trade relationship with China. I sense these discussions are on the right path. There seems to be pretty solid progress toward this phase 1 [agreement], not that it is a done deal yet.”
Even members of the Trump administration are reportedly divided over how hard to push China in the talks, according to The New York Times. Some administration officials want a broad response to how China acquires sensitive technology that could threaten national security while others want to be more limited in their approach in order to continue to support U.S. innovation.
In November, a division of the U.S. Commerce Department known as the Bureau of Industry and Security is expected to announce an initial set of restrictions on U.S. exports of technologies to China such as quantum computing, 3D manufacturing and algorithms for AI, according to a bureau official who spoke to the Times. Loss of quantum computing technology and IP could result in the ability to break sophisticated encryption, allowing hackers to infiltrate critical systems, even defense computers, some fear.