Following a lack of agreement at the U.S. China Comprehensive Economic Dialogue in Washington last week, analysts say they expect the Trump administration to impose stiff penalties on Chinese steel and other imports. They are also predicting the U.S. might go a step further and start questioning some of the rules of the World Trade Organization, which it regards as being unduly favorable to Beijing.
"It appears that not much was accomplished. Negotiations were deadlocked," said Charles W. Boustany Jr., a retired U.S. Congressman and Counselor at The National Bureau of Asian Research. "I believe the Trump Administration is intent on imposing tariffs and other restrictions on steel imports".
The dialogue mechanism was created last April after talks between Presidents Donald Trump and Xi Jinping as a means to resolve old sticking points, including a huge trade imbalance of $347 billion that favors Beijing. But the first meeting, which was co-chaired by U.S. Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, and Chinese Vice Premier Wang Yang, merely helps to highlight the stiff differences between the two sides.
At the heart of the differences were Chinese steel exports and the massive trade deficit. The U.S. feels cheap steel exports are resulting in job losses, a view echoed regularly in Europe.
Boustany said the Trump administration would impose controls on steel imports using national security as the reason. Similar views are being expressed by several experts.
" I do expect in some point in the near future for the Trump administration to impose penalties on steel imports from China and perhaps a few other countries justifying those limits on national security grounds," Scott Kennedy, Deputy Director, Freeman Chair in China Studies at the Washington based Center for Strategic & International Studies, said.
Rejecting WTO rules
He said the U.S. government may go further and start reviewing its commitment to some rules of the World Trade Organization.
"I think during the last five years, China’s economic policies, the level of innovation by the government in different industries, its promotion of high-tech in a discriminatory way has widened the gap between Chinese practices and its commitments (to WTO). And given China's size, that had a big affect on the global economy, including on the U.S. and its high-tech industries," he said.
Kennedy also said, “I think that has generated anxiety and doubts in the United States about the WTO’s rules and whether those rules were good enough to constrain Chinese trade practices.”
After the talks, Chinese Vice Premier Wang Yang said the world's two biggest economies need to cooperate and warned that “confrontation will immediately damage the interests of both.” U.S. Treasury Secretary Steven Mnuchin blamed the trade gap between the two countries on “Chinese government intervention in its economy.”
"The Chinese basically wanted to bring Trump and his team back on the mainstream of U.S.-China bilateral dialogue on economic and trade cooperation the way it used to be during the Obama period. Even Bush did the same thing," said Sourabh Gupta, Institute for China - America Studies in Washington. “Trump came with so much radicalism on trade issues that they just want to maintain a workable format, which is productive and result oriented.”
Trump's approach to trade has completely thrown China's long-term economic plans off the rails, analysts said. Beijing is not being helped with signs of rising protectionism in Europe.
“I think the Chinese side has been somewhat surprised by the toughness of the Trump administration, particularly on White House priority areas like trade (steel) and North Korea,” Paul T. Haenle, Director of the Carnegie-Tsinghua Center for Global Policy, said.
China recently began importing U.S. beef and took other measures to placate Washington. But these items are not enough to placate the new administration in Washington, Haenle said.
"The new U.S. administration has come away with a more realistic sense of the limits of Chinese cooperation, particularly in the lead up to the 19th Party Congress," he said.
Analysts said the ruling Communist Party is unlikely to make too many concessions and appear weak in its negotiations with Washington ahead of the crucial Communist Party meeting later this year.