Trade War - Ceasefire or Merely a Break?

According to a statement issued by the White House, President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft. Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, both countries are unable to reach an agreement, the 10% tariffs will be raised to 25%.

“Critically, the weekend agreement is only a temporary cease-fire in the trade war. It begins a 90-day window for the U.S. and China to reach a much broader agreement on trade, and investment-related issues that had sparked the punitive tariffs and counter-tariffs during 2018,” said Nelson Dong, a Seattle-based partner at Dorsey & Whitney, and a member of the Board of Directors of the National Committee on U.S.-China Relations.

“These new negotiations will presumably focus on China's perceived injurious policies, such as forced technology transfers from the U.S. to China, lax intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, and Chinese market access for U.S. services and agriculture,” said Dong.

He further stated that the U.S. will likely press again for changes in China's “Made in China 2025″ national industrial policy that is seen as encouraging the misappropriation of U.S. and other foreign intellectual property rights, among other unfair trade practices. “China's willingness to agree to any meaningful concessions concerning these broad economic issues remains far from certain, based on the several rounds of unsuccessful talks between U.S. and Chinese officials during much of 2018.”

According to China Law Blog's Dan Harris, the trade fight between U.S. and China is about more than money. It is primarily about how China treats foreign IP and how China treats foreign companies seeking to do business in China. Therefore, the odds are slim that this 90-day pause will lead to a final deal and so companies that do business in or with China should be sure to use these 90 days wisely.

William Marshall, trade partner at Hong Kong-based Tiang & Co is of the same view. He believes that there remains no real common ground on the substance of the matters that are at the core of the dispute, which is the protection and control of critical and emerging technologies. “I expect the Section 301 tariffs are more likely than not to be further expanded and increased to 25% as previously expected.”

“As someone who has been involved with these sorts of China IP issues for decades, I view the odds at near zero that China will make significant and meaningful changes in their system on the issues that will be discussed,” said Steve Dickinson, an attorney specializing in Chinese law at Seattle-based firm Harris Bricken. “This means that if the White House is serious about its absolute deadline the chances of the tariff rate being increased come March are nearly 100%.”

Dickinson said tariffs are unpopular among U.S. business community and therefore it remains to be seen what Trump will actually do 90 days from now. He advises U.S. companies doing business in China to use the next 90 days to make plans on how to begin or continue relations with their Chinese counterparts and decide on whether to move to other countries to mitigate the continuing China risk.