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Thirty years after U.S. curbs on exports to China were eased, two giants' politics and tech collide

Reuters

“U.S. eases curbs on exports to China” read a Reuters headline on March 1, 1989, when Washington lifted long-standing restrictions on technology shipments to China.

On that day, U.S. commerce officials talked warmly of improving ties with China and of the need to help its economy — then about half the size of Italy’s — to grow, despite the objections of military strategists at the Pentagon.

Friday not only marks the 30th anniversary of the decision, but it is also the deadline set by U.S. President Donald Trump for a deal to end the seven-month trade war with China, now its biggest economic rival.

A different kind of technology transfer is at the center of the trade tussle that is likely to play a big part in defining the path of the world economy in the years to come.

The United States has accused Beijing of forcing U.S. companies doing business in China to share their technology with local partners and hand over intellectual property secrets.

More broadly, the dispute over trade has produced tit-for-tat tariffs on hundreds of billions of dollars of goods, disrupting manufacturing supply chains and weighing on the global economy.

Without a deal, U.S. tariffs on $200 billion of Chinese goods are scheduled to rise to 25 percent from 10 percent, although Trump has said he may be flexible on the deadline if he sees progress being made.

Trump said on Friday there was “a very good chance” the United States would strike a deal with China and that he was inclined to extend the deadline and meet soon with Chinese President Xi Jinping.

U.S. and Chinese negotiators met for over seven hours on Saturday in Washington and were to meet again on Sunday morning as they race to seal an agreement. Saturday marked the fifth straight day of the negotiations. The Chinese delegation is scheduled to leave for Beijing on Monday.

This is the fourth round of negotiations since Washington and Beijing agreed to a cease-fire in their trade war.

Trump and U.S. Treasury Secretary Steven Mnuchin said Friday that U.S. and Chinese officials had reached an agreement on currency issues, but did not give details. U.S. officials have long argued that China’s yuan is undervalued, giving it a trade advantage and partly offsetting U.S. tariffs.

Trump said he did not like memorandums of understanding because they are short-term in nature, and he wanted a long-term deal.

There is no agreement on the enforcement mechanism, either. The United States wants a strong mechanism to ensure the Chinese reform commitments are followed through, while Beijing insists upon what it calls a “fair and objective” process.

Negotiators are drawing up six memorandums on structural issues: forced technology transfer and cybertheft, intellectual property rights, services, currency, agriculture and nontariff barriers to trade, sources said.

Failure to reach a deal would have big consequences, and not only for the world’s top two economies.

In a full-blown trade war with 25 percent tariffs on all goods flowing in both directions, China could lose up to €171 billion ($194 billion) in exports to the United States — around a fifth of the current annual total — according to a new report from EconPol Europe, a research network founded by Germany’s Ifo Institute. The United States would lose around €51 billion of exports going to China.

The winner — at least in the terms of crude mercantilism favored by some — could be Europe.

“Trump may claim victory as the U.S. manufacturing sector grows while the Chinese one shrinks and the bilateral trade balance of the U.S. with China improves,” EconPol Europe researchers Gabriel Felbermayr and Marina Steininger said.

“However, with the EU it deteriorates and Europe’s trade (surplus) with the U.S. becomes even larger,” they added, since the United States would turn to Europe to substitute at least some of its Chinese imports.

And that could stoke further antagonism from the United States directed at the European Union, Felbermayr and Steininger said.