Shaky U.S.-China Trade Relationship Will Top Trump's Agenda In Beijing | KUOW News and Information

Shaky U.S.-China Trade Relationship Will Top Trump's Agenda In Beijing

Nov 8, 2017
Originally published on November 8, 2017 8:13 am

Soft lounge music pipes through the speakers as elegantly dressed shoppers peruse organic produce and meats at City'super, one of Shanghai's most upscale markets, a cross between Whole Foods and Louis Vuitton. But one look at the price of an American steak is enough to conjure a mental scratch of a needle across this soothing soundtrack: Nearly $60 for a pound of USDA Prime ribeye.

"That's around 30 percent more expensive than the best steak from Australia," says Wang Yansong, manager of the meat purchasing department of City'super. "We hope the price will come down so that we can sell more of it. We now sell a ton of it each month."

That may seem like a lot, but Wang sells nine tons of Australian steak per month. So why is U.S. beef so expensive in China?

"There is still limited supply," says Jason Hafemeister, trade counsel to the U.S. agriculture secretary. "It's trickling into China as we're ramping up, so supply and demand, valued product, people are able to charge more and find customers who will pay for it."

Hafemeister says U.S. beef is a hot commodity in China. But there are other reasons for its stratospheric price — reasons that get at the heart of the shaky trade relationship between the U.S. and China.

China imposes a 12 percent tariff on beef from the U.S., yet its biggest competitors in the beef market in China – Australia and New Zealand – have both signed free trade agreements with Beijing, pushing down their tariffs to around 4 percent. Australia sold more than half-a-billion dollars' worth of beef to China last year; Hafemeister hopes the U.S. can sell just $20 million worth by the end of this year.

James McGregor, president of the greater China region for the consulting firm APCO, says China's lifting of the U.S. beef ban in May is the latest case of too little, too late. And he's not optimistic the Trump administration is focused enough to improve business for U.S. companies in China.

"There is no strategy and professionals are not involved," he says. "The people from [the U.S. Trade Representative's office] and Commerce and State are sidelined."

McGregor says instead of representatives from the U.S. Trade Representative and other government staff who typically deal with China, President Trump has political appointees with little to no trade experience engaging with the Chinese.

"It's really been a farce," says McGregor. "And if it continues like this, it's really going to hurt American business. The Chinese are pros. They know what they're doing. Anybody sitting on the other side of the table as Chinese negotiator has been doing that subject for 20 years."

McGregor says Chinese negotiators have called friends of his in Beijing to see what the Chinese side could give to Trump during his Beijing visit to please his base. He calls these "Twitterable deliverables," and he puts the lifting of the Chinese ban on U.S. beef in this category: an easily promotable gift that, because it has come so late, may not have a meaningful impact on the U.S. economy.

What would have an impact, says William Zarit, chairman of the board at the American Chamber of Commerce in China, is forcing China to open its markets to U.S. business and to stop giving preferential treatment to Beijing's own so-called "global champion" companies. Tech giants Baidu, Alibaba and Tencent, as well as telecommunications company Huawei, have all received generous support from Beijing.

"These global champions are being nurtured in the domestic market with protection and with strong state support, so that in some ways, when these companies go international, it's tantamount to a Western company competing with the country," says Zarit.

And when U.S. companies come to China, they're often forced to hand over their technology and enter into joint ventures with Chinese partners. U.S. companies in at least 10 sectors — including automotive, healthcare, tech and entertainment — have investment caps preventing them from competing with Chinese companies on a fair playing field. Chinese companies in these sectors have no such caps in the U.S. market.

In fact, the Organization for Economic Cooperation and Development or OECD, the organization of developed countries, consistently ranks China among the most restrictive markets in the world, while the U.S. is consistently among the least.

Each year, the American Chamber of Commerce in China surveys executives of hundreds of U.S. companies doing business in China with simple, straightforward questions such as "Do you feel welcome in China?"

More than 80 percent of those who responded this year "felt less welcome in China that they did in the past," says Zarit. "I think this is quite compelling."

This year's survey also found 40 percent of respondents saying their companies were slowing investment in China as a result of unfair treatment by the Chinese. This, says Zarit, is what Trump should focus on in his meetings with the Chinese this week.

APCO's McGregor says Trump should also focus on how Chinese companies – many backed by state funding — are acquiring U.S. companies at an alarming rate.

Earlier this year, an internal Pentagon report warned of a surge of Chinese investment in Silicon Valley startups, especially in technology with military applications.

According to The New York Times, the Pentagon report, commissioned by former Secretary of Defense Ash Carter, said: "The U.S. government does not have a holistic view how fast this technology transfer is occurring, the level of Chinese investment in U.S. technology, or what technologies we should be protecting."

"The Chinese are smart," says McGregor. "They're investing in everything in Silicon Valley right now. And in some cases, when the Chinese invest in something that prevents [the] U.S. government from investing, they're blocking technologies from our military."

McGregor says a Pentagon technology specialist told him the report has been removed from the Internet at the request of the U.S. Joint Chiefs of Staff.

"We pride ourselves on our openness and our rule of law," says McGregor. "But this is a weakness, when you have this machine coming at you."

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

RACHEL MARTIN, HOST:

All right. President Trump arrived in Beijing a short time ago. Our colleague, Steve Inskeep, is there, too.

STEVE INSKEEP, BYLINE: The president's visit here to China is the centerpiece of his journey through East Asia, and one central theme is trade. NPR's Rob Schmitz has been covering that story for years. He's on the line. Hi, Rob.

ROB SCHMITZ, BYLINE: Hey, Steve.

INSKEEP: So the president has been saying he wants a better deal for the United States. What's the deal that American companies face now in China?

SCHMITZ: Well, I think a lot of companies would complain about the deal that they face. You know, China boasts the world's largest consumer class, so it is an alluring market. But for more and more U.S. companies, the cost of doing business here is getting harder and harder to justify.

INSKEEP: Hasn't the Trump administration already said they're making progress? They made an announcement about beef exports not long ago.

SCHMITZ: Yeah, that's right. One of Trump's early victories in his presidency was getting the Chinese to lift a 14-year ban on the sale of U.S. beef in China. And being able to sell beef to 600 million consumers is a huge deal. And I was trying to figure out, OK, so how big of a deal is this?

(SOUNDBITE OF MUSIC)

SCHMITZ: So I went to city'super, one of the most upscale grocery stores in the city. It's sort of like a cross between Whole Foods and Louis Vuitton set to soft lounge music. But for how well-off these shoppers are, one look at the price of an American steak is enough to conjure a mental scratch of a needle across this soothing soundtrack - $50 for a pound of USDA rib-eye prime. Wang Yansong is manager of the meat purchasing department of city'super.

WANG YANSONG: (Through interpreter) That's around 30 percent more expensive than the best steak from Australia. We hope the price will come down so that we can sell more of it. We now sell a ton of it each month.

SCHMITZ: Wang says he sells nine tons of Australian steak per month. So why is U.S. beef so expensive in China? Jason Hafemeister, trade counsel to the secretary of the U.S. Department of Agriculture, says it's because it's a hot commodity.

JASON HAFEMEISTER: There is still limited supply. It's trickling into China as we're ramping up, so supply and demand, valued product. And then people are able to charge more and find customers who'll pay for it.

SCHMITZ: But there are other reasons, reasons that get at the heart of the shaky trade relationship between the U.S. and China. China imposes a 12 percent tariff on U.S. beef, yet our biggest beef competitors in China, Australia and New Zealand, have both signed free trade agreements with Beijing, pushing down their tariffs to around 4 percent. That's meant Australia sold more than half a billion dollars' worth of beef to China last year, whereas the U.S. hopes it can sell just $20 million worth by the end of this year.

James McGregor, president of the Greater China region for APCO, says the lifting of the U.S. beef ban in China is the latest case of too little, too late. And he's not optimistic the Trump administration is focused enough to improve business for U.S. companies in China.

JAMES MCGREGOR: There is no strategy and the professionals are not involved. The people from USTR and commerce and state are sidelined.

SCHMITZ: That's the U.S. trade representative and other staff that typically deal with China. Instead, he says, Trump has political appointees with little to no trade experience engaging with the Chinese.

MCGREGOR: It's really been a farce. And if it continues like this, it's really going to hurt American business. And the Chinese are pros. You know, they know what they're doing. They - anybody sitting on the other side of the table as a Chinese negotiator has been doing that subject for 20 years.

SCHMITZ: McGregor says Chinese negotiators have called friends of his in Beijing to see what the Chinese side could give to Trump during his Beijing visit to please his base. He calls these twitterable (ph) deliverables and he puts the lifting of the Chinese ban on U.S. beef in this category - an easily promotable gift that, because it's come so late, may not have a meaningful impact on the U.S. economy.

What would, says William Zarit, chair of the American Chamber of Commerce in China, is forcing China to open its markets to U.S. business and to stop giving preferential treatment to Beijing's own so-called global champion companies - companies like tech giants Baidu and Tencent and telecoms company Huawei, which have all received generous support from Beijing.

WILLIAM ZARIT: These global champions are being nurtured in the domestic market with protection and with strong state support. So that in some ways when these companies go international, it's tantamount to a Western company competing with a country.

SCHMITZ: And when U.S. companies come to China, they're often forced to hand over their technology and enter into joint ventures with Chinese partners. U.S. companies in at least 10 sectors, including automotive, health care, tech and entertainment, have investment caps preventing them from competing with Chinese companies on a fair playing field. Chinese companies in these sectors have no such caps in the U.S. market.

Each year, AmCham surveys executives of hundreds of U.S. companies in China with simple, straightforward questions like...

ZARIT: Do you feel welcome in China? And the statistic was over 80 percent of our companies felt less welcome in China that they did in the past. I think this is quite compelling.

SCHMITZ: This year's survey also found 40 percent of respondents saying their companies were slowing their investment in China as a result of unfair treatment. This, says Zarit, is what Trump should focus on in his meetings with the Chinese this week.

APCO’s James McGregor says Trump should also focus on how Chinese companies, many backed by state funding, are acquiring U.S. companies at an alarming rate.

MCGREGOR: Chinese are smart. They're investing in everything in the Silicon Valley right now. And in some case, it - when the Chinese invest in something that prevents the U.S. government from investing in it, they're blocking some technologies from our military.

SCHMITZ: Earlier this year, a Pentagon report warned of a surge of Chinese investment in Silicon Valley startups that were essentially blocking the latest technologies from being sold to the U.S. government.

MCGREGOR: We pride ourselves on our openness and rule of law, and now that is a weakness when you've got this machine coming at you.

SCHMITZ: According to the report commissioned by former U.S. Secretary of Defense Ashton Carter, quote, "the U.S. government does not have a holistic view how fast this technology transfer is occurring, the level of Chinese investment in U.S. technology or what technologies we should be protecting," unquote. A Pentagon tech specialist told McGregor the report has been removed from the internet at the request of the U.S. Joint Chiefs of Staff. Rob Schmitz, NPR News, Shanghai.

(SOUNDBITE OF STEV FEAT. JHON MONTOYA'S "SLOWMOTION FALLING") Transcript provided by NPR, Copyright NPR.