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In U.S.-China Conflict, Tariff Man is Morphing into Monty Hall

February 23, 2019, 4:29 PM UTC

President Trump’s Friday Oval Office meeting with Chinese vice premier Liu He generated a flurry of news about the progress of U.S.-China trade talks. Here’s what we learned:

  • Let’s keep talking: Liu and his delegation will remain in Washington through the weekend for further talks instead of returning to Beijing Friday. Trump hailed the 48 hour extension as a sign that the two sides are nearing a final deal. “We are having good talks, and there’s a chance that something very exciting can happen,” he said.
  • Nothing “magical” about March 1: Trump reaffirmed his willingness to extend by at least a month his March 1 deadline for raising tariffs on Chinese imports—provided negotiators can make significant progress in discussions over the weekend.
  • Trump-Xi summit in Mar-a-Lago: Trump hopes to sign a final deal at a summit with Chinese leader Xi Jinping at his resort in Mar-a-Lago, Florida sometime next month.
  • Cool beans: China promised to purchase an additional $10 billion metric tons of U.S. soy beans, an increase that would be equal to about a third of China’s 2017 U.S. soy bean imports from the U.S.
  • Stabilizing the yuan: The two nations have agreed on a currency provision to keep the value of the yuan stable and neutralize any effort by China to soften the impact of U.S. tariffs. There were no details and it’s unclear whether the accord would include a binding commitment from China with repercussions for failure to comply. But Treasury Secretary Steven Mnuchin called the deal “one of the strongest agreements ever on currency.”
  • Don’t call it an MOU: Among the most bizarre moments in Trump’s Oval Office meeting with Liu was an exchange with trade representative Robert Lighthizer about how to describe a U.S.-China deal. Before a phalanx of cameras, an exasperated Lighthizer seemed to lecture the press—and his boss—on the meaning of “memorandum of understanding.” An MOU, he explained, “is a contract. It’s the way trade agreements are generally used…” Trump wouldn’t have it. “By the way, I disagree,” he countered. “I think that a Memorandum of Understanding is not a contract to the extent that we want…I don’t like MOUs because they don’t mean anything…I think you’re better off just going into a document.” Trump’s open dissent with his trade adviser provoked a guffaw, quickly stifled, from Liu. Lighthizer immediately changed tack: “From now on we’re not using the word Memorandum of Understanding anymore. We’re going to use the term trade agreement, all right?”
  • Cashing chips: The Financial Times reports that U.S. and Chinese negotiators are trying to resolve a long-running dispute between rival chipmakers Micron Technology and Fujian Jinhua as part of the larger trade deal.
  • Stuck on structure: It’s clear the two sides remain at loggerheads on “structural issues,” including China’s practice of forcing foreign companies to transfer technology as the price of access to the Chinese market; China’s generous state subsidies for technology firms; and wide-ranging theft by Chinese companies of U.S. intellectual property.

That’s a lot to digest. Parsing the larger context is harder still. If nothing else, Trump’s recent tweets and public statements on U.S.-China trade negotiations suggest trade hawks like Lighthizer and Peter Navarro are losing ground. Bruised by his futile stand-off with Democrats over funding for a border wall with Mexico, vexed by the imminent release of the Mueller report, and weighing his chances for re-election in 2020, Trump needs a win. Tariff Man is morphing into Monty Hall.

The true enigma of U.S.-China talks is Trump’s shifting position on Huawei Technology, China’s telecommunications equipment giant. For months White House officials have insisted U.S. demands that Canada extradite Huawei chief financial officer Meng Wanzhou to the U.S. on fraud charges, and subsequent Justice Department indictments against Huawei for violating U.S. sanctions policies and stealing technology secrets of U.S. companies are matters of law, and therefore on a “separate track” from trade negotiations. On Thursday, Secretary of State Mike Pompeo slammed Huawei as a threat to U.S. relations with Europe.

That tough talk is beginning to sound like a bluff. As I noted in Data Sheet Wednesday, Germany has nixed U.S. demands that it ban Huawei from its 5G network, and security officials in America’s closest security ally, the United Kingdom, now say they can “manage” the risk of buying telecom equipment from Huawei. Investor’s Business Daily argues: “The problem is, Huawei is way ahead in developing next-generation 5G technology. The U.S. isn’t even close. And other nations want 5G. Now.”

Trump’s recent tweets on 5G (and 6G!) make it clearer than ever that he is so keen for a trade deal that he is willing to offer clemency to Meng—and grant U.S. market access for Huawei—as a sweetener to close the trade deal.

Clay Chandler

Economy and Trade

Bad loans. A rift emerged between Premier Li Keqiang and the People’s Bank of China (PBoC), China’s central bank. Last month Chinese banks issued $476.97 billion in new loans, almost triple the amount issued in December, prompting Premier Li Keqiang to warn of “new potential risks” brought by the surge in lending. Regulators cut the reserve requirement ratio for banks in January to stimulate lending, but Li said the swell in short term loans could lead to “arbitrage” and “empty cycling.” The PBoC rebutted Li’s comments and said the loans “mainly supported the real economy.” South China Morning Post

Coal on hold. China may have restricted imports on Australian coal with the port city of Dalian banning Australian coal altogether. Relations between Beijing and Canberra have deteriorated since the latter accused the former of interfering in Australia's domestic politics. China says it has restricted coal imports for environmental, rather than political reasons and that Australia is not being targeted. Australia Trade Minister Simon Birmingham said there is “no basis” to believe there is a ban on Aussie coal. Fortune

Full speed. Shipments of Tesla’s Model 3 began arriving in Shanghai yesterday. Tesla sent three shipments of its latest marque to China earlier this month. The last is due to arrive tomorrow. Analysts say the car maker wants to stock up before March 1, when tariffs on auto imports could potentially shoot up to 40% if a trade deal is not reached. TechNode

Innovation and Tech

Huawei, or another. Huawei founder and CEO Ren Zhengfei has warmed to the spotlight. The formerly reclusive 74-year old gave two broadcast interviews this week, one of which was his first ever for an American network. Ren accused the U.S. of attempting to “crush” the company. On cue, Secretary of State Mike Pompeo warned the U.S. would have to reconsider its relationship with nations that deploy Huawei tech. But then, in a series of tweets about 5G and “6G”, President Trump said, “I want the United States to win through competition, not by blocking out currently more advanced technologies.” Fortune

Feeling insecure. Dutch researcher Victor Gevers leaked data taken from SenseNets Technology, a Shenzhen-based developer of facial recognition tech, that shows the company is tracking millions of people in China’s Xinjiang province, where the government is oppressing the region’s ethnic Uighur group. According to the leak, the company’s surveillance system tracks over 2.5 million people and accrued over 6.5 million location data points within 24 hours. Gevers says the information was unencrypted and “fully open,” allowing anyone to “create, read, update and delete anything.” Reuters

DNA deal. Staying with Xinjiang – U.S. based Thermo Fisher, which makes DNA testing equipment, said it will no longer sell its products in Xinjiang following a report that revealed police in the region used Thermo Fisher’s kits to identify members of the Uighur group. New York Times

Gene genie. The genetically edited twins born in China last year might have had their brains altered in a way that affects memory and cognition. He Jiankui, the now disgraced scientist who performed the editing technique on the unborn twins, was attempting to make the children immune to HIV. MIT Technology Review

Fire me! Didi suffered record losses of $1.4 billion last year and plans to lay off 15% of its employees this year. However, the company is offering a severance package that amounts to over three months’ pay. It’s a deal rumored to be so attractive that employees are racing to get fired. TechNode

In Case You Missed It

Kashmir terror attack revives old India-China tensions Financial Times

The struggle to reform China’s economy The Economist

Amazon is reportedly merging its China import unit with NetEase TechCrunch

The race to 5G wireless tech is on. A report finds Americans may have an early lead Washington Post

In Beijing, a Communist funeral for an inconvenient critic NYT

Politics and Policy

That's your opinion. “We need to learn to listen to China” reads the headline of an op-ed that appeared this week in the People’s Daily, a Communist Party mouthpiece. Strikingly, the article appeared to be written by former New Zealand Prime Minister Dame Jenny Shipley, but she has denied writing it. Relations between New Zealand and China has grown terse over the last week, with the Beijing postponing a joint tourism project and delaying current Prime Minister Jacinda Arden’s state visit. Reuters

Turning east. Saudi Crown Prince Mohammed bin Salman (MBS) concluded his Asia tour by meeting with China President Xi Jinping. During the prince’s visit, Saudi Arabia signed 35 economic cooperation agreements with China worth a total $28 billion. Aramco, Saudi’s state-owned oil company, signed a $10 billion deal to build a plant in China. Saudi Arabia also plans to add Mandarin to its national curriculum. Reuters


This edition of CEO Daily was edited by Eamon Barrett. Find previous editions here, and sign up for other Fortune newsletters here.