US-China Tech Competition Making Trade Deal Increasingly Improbable, Experts Say

U.S.-China technology competition and the Trump administration’s restrictions on Huawei have likely dashed the prospects of a phase two trade deal, China experts said. The experts also agreed that the phase one purchase agreements are unlikely to be met, even as the U.S. trade representative continues to tout progress on Chinese purchase commitments (see 2005210036).

“The phase one deal is impossible,” said Leland Miller, a Chinese economy expert with the Atlantic Council, speaking during a June 9 webinar hosted by the think tank. Robert Dohner, a non-resident Atlantic Council fellow and former Treasury Department official, called the phase two deal “dead,” adding that the U.S.’s approach to protecting technology has damaged future negotiations. “I think the technology policies, particularly the pursuit of Huawei, have made it impossible now to go back and negotiate with China on technology policy or domestic industrial policy,” Dohner said.

Miller said the administration needs to reassess how it wants to approach Huawei and needs to better follow through on threats. “There needs to be a reckoning in the United States government on how much do we really want to be pushing against Huawei,” he said, adding that the administration is attempting a difficult balancing act between technology competition and trade agreements. “If we're not following through on Huawei … does that mean that there are other issues in the relationship, like buying soybeans, that seem to be taking a higher priority?”

Much of the friction between the two sides can be attributed to U.S. policies that work against Huawei, including its addition to the Commerce Department’s Entity List last year and Commerce’s increased restrictions on export licenses announced last month (see 2005150058). Although the restrictions last year caused uncertainty, they also exposed “enormous loopholes” that showed the Entity List did not cripple Huawei as much as the administration had hoped, Miller said. “It's not a terribly serious black list,” he said. “It's mostly a political message at this point.” Commerce’s Bureau of Industry and Security did not comment.

The restrictions announced last month -- including an amendment to the direct product rule -- could significantly increase pressure on Huawei and further strain tensions in the U.S.-China relationship, Miller said. But the restrictions, if not implemented correctly, could also lead to more loopholes, he added. “This is a potentially very big deal,” Miller said. “But it's only a big deal if it's not accompanied by a series of backdoor licenses that will allow everyone to do what they were doing from the very beginning.”

Companies are still trying to determine what they can “still get away with,” said Dexter Roberts, a non-resident Atlantic Council fellow. “All the restrictions in the world are going to be very, very hard to implement as long as Huawei is providing fast, cheap chips and cheap telecom gear that countries around the world want.” Industry will have a clearer understanding about whether the U.S. is serious about closing loopholes after the current expiration of the temporary general license for Huawei, Miller said. “The first test of this will be this fall, when you see the temporary general license [end],” he said. “The government said it's unlikely to get another renewal, but we'll see.”