02:16 - Source: CNN Business
White House trade adviser: Ball's in China's court
Washington CNN  — 

The Trump administration on Tuesday continued to ratchet up pressure on China, releasing an updated report showing Beijing has done little to fix its unfair practices less than two weeks before the leaders of the two economic superpowers plan to meet.

The 50-page report by the Office of the Trade Representative concluded that China has “not altered” its policies and practices tied to technology transfers, intellectual property and innovation as part of the US government’s ongoing investigation launched last August. The Trump administration has been urging Beijing to address those top concerns as part of its on-and-off-again trade negotiations.

Instead, the country’s top trade official warned that China “appears to have taken further unreasonable actions in recent months,” including continuing to apply strict restrictions on foreign investment as a way to pressure US companies to transfer technology to Chinese firms.

“China shows no signs of ceasing its policy and practice of conducting and supporting cyber-enabled theft and intrusions into the commercial networks of US companies,” the sweeping report said. Such illicit activity has led to economic espionage by the Chinese government which has stolen trillions of dollars in intellectual property, the US government said. It also pointed to how Chinese state-sponsored hackers have developed even better tools to conceal cyberattacks.

The scolding report by America’s top trade negotiator heightens uncertainty over the ability of President Donald Trump and Chinese leader Xi Jinping to reach a truce when they meet in Argentina on the sidelines of the G20 meeting.

The Trump administration has already slapped tariffs on $250 billion in Chinese products since July. The tariffs on $200 billion of those goods are set to increase from 10% to 25% on January 1, which would further escalate the conflict.

China has retaliated with tariffs on $110 billion in US products and is likely to respond with more if the United States goes ahead with the increase in January.

The Argentina meeting is the only scheduled opportunity for a direct tête-à-tête between Trump and Xi, though the two leaders exchanged direct visits in 2017. Trump welcomed Xi at his Mar-a-Lago resort in Florida with a lavish banquet and a singing performance in Mandarin by his granddaughter Arabella.

Larry Kudlow, the White House economic adviser, raised the stakes earlier Tuesday, warning that he anticipated a direct confrontation between with China over trade shortly after plans collapsed for high-level discussions in Washington.

“It will come to a head at the G20, I think that’s the key point,” Kudlow told reporters at the White House.

His comments came after a high-level Chinese delegation delayed and then canceled its trip to the US capital amid an escalating war of words between Trump and Xi.

Chinese Foreign Ministry spokesperson Geng Shuang announced Tuesday in a statement that Vice Premier Lui He will travel to Germany on Sunday at the invitation of Olaf Scholz, the vice chancellor and finance minister.

A US Treasury spokesman declined to comment on the status of the negotiations.

Trump last Friday described a list of 142 concessions offered by the Chinese as “not acceptable,” though he also expressed optimism that he could reach a deal with China before January 1.

The tariffs have drawn complaints from American businesses, which are responsible for paying the import duties. They also have spurred concerns about renewed inflation, just as the Federal Reserve is set to raise interest rates in December.

Vice President Mike Pence subsequently increased pressure on Beijing in his remarks over the weekend to the Asia-Pacific Economic Cooperation summit in Papua New Guinea.

The No. 2 US administration official warned that Trump wasn’t in a rush to end the trade war he had started earlier this year and was willing to “more than double” the tariffs it has placed on $250 billion in Chinese goods. The United States “will not change course until China changes its ways,” Pence said in his speech.

“It’s possible that it’s a negotiating tactic,” said David Dollar, a senior fellow at the Brookings Institution who’s a former economic and financial emissary to China for the Treasury Department, referring to the vice president’s speech. “Let the Chinese hawks have their free rein to get the Chinese scared of potentially what might happen.”

The Trump administration has been divided between free traders – including those with Wall Street backgrounds, like Treasury Secretary Steven Mnuchin and Kudlow – and hardliners like Trade Representative Robert Lighthizer and White House trade adviser Peter Navarro.

It’s been unclear who among them has Trump’s ear, but close China watchers cautioned ahead of the release of the updated report that Lighthizer has played a pivotal role in steering the administration’s trade strategy on China and elsewhere.

“He’s delivered,” said Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies. “It would be very unlikely the administration would issue a major decision that would directly be in conflict with that strategy,” referring to a tool used by the administration to apply pressure to China to? change its unfair trade practices.

Over the weekend, Xi once again denounced Washington’s “winner-takes-all” trade strategy, calling on differences between the two countries to be ironed out “through consultation.”

“History has shown that confrontation, whether in the form of a cold war, or a hot war, or a trade war, will produce no winners,” Xi said in his own speech at the APEC summit in Papua New Guinea’s capital, Port Moresby.

The APEC summit ended on Sunday without agreement in a joint statement over a paragraph on trade, breaking a 25-year tradition since leaders began attending the yearly meeting.

Kudlow said Tuesday that Pence and Xi “spoke several times” during the APEC meeting but did not elaborate.

The punt to the Argentina summit comes after a week of cautious optimism that US and Chinese negotiators could reach some kind of a deal beforehand.

Optimism flared earlier this month after Commerce Secretary Wilbur Ross floated the possibility that negotiators would meet in Washington ahead of the Argentina meeting. The proposed gathering came shortly after Mnuchin and Liu spoke by phone in hopes of moving toward a deal.

Kudlow on Tuesday declined to make any sunny predictions on the fate of the talks, saying: “I don’t want to conclude anything.”