Two contentious issues were notably downplayed in the deal between President Donald Trump and President Xi Jinping at the G-20 summit over the weekend: China’s alleged practice of forcing technology transfers and apparent theft of intellectual property from American companies.
U.S. concerns over forced technology transfers in China, intellectual property violations and cyber-crime issues will likely become a central focus going forward, as trade negotiations between both countries continue, experts told CNBC on Monday. However, they added, a resolution may not be immediately forthcoming.
Over the weekend in Argentina, the United States and China agreed to put their bilateral trade war on hold for 90 days to negotiate lingering disagreements.
“It is interesting to note that IP/cyber was only mentioned in paragraph four of the White House statement, reflecting Trump’s focus on trade deficits,” Steven Okun, senior advisor at McLarty Associates told CNBC on Monday. “Still, this does not mean this is not core to the U.S. tariffs.”
The trade war is based on the investigations by the Office of the United States Trade Representative (USTR) into China’s intellectual property practices, he said.
One expert, however, said that downplaying those issues could reflect the reality of what to expect from ongoing negotiations — that there are no quick fixes to the complexities of forced technology transfers and intellectual property violations.
“I have argued for some time that there is no quick resolution to these issues, so there is no simple win for the Trump Administration here,” Adam Posen, president of the Peterson Institute of International Economics said. “The downplaying could therefore be a welcome dose of realism from the Trump Administration about what to expect from negotiations.”
Or, it could represent a desire to calm things down with China, he added.
“Either way, this issue is not going to go away,” Posen told CNBC by email. “There is some legitimacy to the US and other Western governments’ complaints about IP theft — though I don’t think it is as damaging or important as some make it out to be.”
Trump, who made U.S. trade policy a central plank of his platform when he was a presidential candidate in 2016, wants to address specific gripes with China’s trade practices, especially its alleged theft of U.S. intellectual property.
The two leaders discussed a range of nettlesome issues at the G-20 summit — among them the trade dispute that has left over $200 billion worth of goods hanging in the balance. U.S. and Chinese officials will spend the next 90 days negotiating and if at the end of that period of time, the parties are unable to reach an agreement, the U.S. would raise the 10 percent tariffs to 25 percent, according to a White House statement.
The temporary truce should be seen as the start of difficult negotiations, Michael Hirson, director for Asia at the Eurasia Group, said.
“This set of issues is wrapped up in national security concerns, and more broadly the intensifying geopolitical competition between the U.S. and China,” he told CNBC. “It will be very difficult to close the gap between the two sides in such a short time period.”
Whether the truce holds or not will come down to not only the substance of the negotiations, but also the degree to which Trump is willing to accept Chinese commitments, Hirson explained.
Domestic political reaction in the U.S. over the coming weeks could also influence Trump’s stance — pressure from his own party and political base, as well as from the Democrats, could push Trump to draw a harder line on technology transfer and intellectual property issues, Hirson added.
In a Saturday note, Eurasia Group also pointed out that technology and industrial policy, areas where the U.S. wants concessions, are central to Xi’s core agenda of making China an innovation superpower — which further adds to the difficulties of reaching a mutually agreeable position.
“The key question (is): What needs to happen in these 90 days in a concrete way to keep the negotiations going on beyond it,” said Okun from McLarty Associates.
Realistically, he said, both countries will not be able to address all the points of the dispute in such a short period of time, which includes the Trump administration wanting to see a drastic change in China’s trade architecture.
He added that stopping intellectual property violations and forced technology transfers going forward may be achieved during the negotiating period, but “how do you remedy the past violations? That can’t be done in 90 days.”
For the trade negotiations to succeed, experts agreed that China will need to make potential concessions on its tech industry even as Beijing pushes for its Made in China 2025 industrial policy plan to manufacturer high-end technologies within its borders.
Any trade agreement will likely deal with some structural changes in the Chinese tech industry to appease American demands, according to Edison Lee, an equity analyst at Jefferies.
“We see two areas of potential concessions by China: government subsidies to the tech industries, and local (joint venture) requirements for certain tech services,” he wrote in a Monday note.
Lee explained that Chinese state subsidies worked on three levels: first, through direct grants, usually for research and development or for specific projects. Second, through research and development tax credit, and finally, via concessionary tax rates for companies that are classified as “high tech.”
“For tech services, China may have to eliminate some non-tariff trade barriers such as local partner requirements for foreign cloud service and software providers,” he said. “If that happens, it could benefit some US companies such as Microsoft, Amazon, Alphabet and Oracle.”
Written by Admin
Stock futures rose early Friday, boosted by a jump in Apple shares, as Wall Street ...
Check out the companies making headlines before the bell:Comcast (CMCSA) – The NBCUniversal and CNBC ...