President Trump and President Xi Jinping of China managed to get trade talks back on track this past weekend, but an even tougher job lies ahead—appeasing hard-line factions within their own governments demanding they give no quarter.
Mr. Xi faces party leaders and executives of state-owned enterprises who believe Washington is out to demolish the government-led economic model that is responsible for China’s emergence as a global power and U.S. rival.
Mr. Trump, for his part, faces skepticism from some Republican and Democratic lawmakers who worry he will give up too much in any deal, as well as wariness among some of his own appointees. Heading into an election year, Mr. Trump must also contend with restiveness among his supporters in the business community and farm-belt states who have been hit by the tariffs imposed by both countries.
“I see a kind of symmetry in that both Xi and Trump have bases whose support they need,” said Hudson Institute China scholar Michael Pillsbury, who advises Mr. Trump’s administration. “In China, the hawks have been quite specific that they don’t want a free market and they want a more assertive China. On the American side, the base wants not to be ripped off or taken advantage of by China.”
Simply relaunching the talks, which had been on hold since hitting an impasse two months ago, took a lot of negotiating. In return for getting China back to the bargaining table, Mr. Trump agreed to hold off on new tariffs on $300 billion in Chinese imports, and China agreed to buy more U.S. farm goods.
But a U.S. concession on Chinese telecommunications giant Huawei Technologies Co.emerged as a key bargaining chip, one that illustrates the difficult decisions ahead.
Mr. Trump said his move to let Huawei buy high-tech equipment from the U.S.—worked out on the sidelines of a meeting of the Group of 20 leading economies here—would only apply to parts that don’t affect U.S. national security. A Commerce Department bureau is working to tailor export licensing “with particular scrutiny of the threat that Huawei poses to our broadband networks, which are crucial to national security,” an administration official said.
But Mr. Trump faced immediate pushback from China hawks in Congress. Sen. Marco Rubio (R., Fla.) warned via Twitter that any concession on Huawei “will destroy the credibility” of the administration.
Even within the administration, there are deep concerns in the national-security establishment about taking the heat off Huawei, which U.S. officials said was built on a foundation of stolen Western technology and is now building wireless networks that could be tapped by the Chinese government. Huawei has forcefully denied these allegations.
“If there is a deal that’s done that saves Huawei, within the national-security bureaucracy, the knives will be out,” said James Green, a former Trump trade negotiator who is now an adviser at consulting firm McLarty Associates. Well-placed individuals could leak information or take other actions that make a settlement more difficult, he said.
Mr. Trump, however, largely looks at Huawei as both a bargaining chip and a commercial challenger to U.S. firms, not a part of an existential struggle with China, people familiar with his thinking said. Hank Paulson, who served as Treasury secretary in former President George W. Bush’s administration and is a longtime Trump critic who consults with senior officials in the administration, has called the president “a moderating force” in the administration’s internal battles over how to deal with Huawei.
Robert Lighthizer, who is leading negotiations as the U.S. trade representative, had sought to keep Huawei out of talks in the belief that it could complicate an already difficult negotiation, according to administration officials.
But after China backed away from a prospective deal in early May—returning a 150-page text the two sides were negotiating with large sections struck out—national security adviser John Bolton lobbied the president and national-security officials to add Huawei to the so-called “entity list,” which prevents companies from supplying technology of U.S. origin to Huawei without U.S. government approval.
He was backed by Commerce Secretary Wilbur Ross, whose agency is responsible for the blacklist but who hadn’t won support until Mr. Bolton interceded, the officials said. Another administration official said Mr. Ross “elevated the issue” to the president.
For Beijing, relieving U.S. pressure on the company is a precondition for a broader deal. Among some of Mr. Xi’s advisers, the U.S. blacklist, its lobbying of other countries to reject Huawei’s next-generation wireless equipment known as 5G and U.S. extradition proceedings against a Huawei executive are evidence that the U.S. is trying to block China’s rise, not simply negotiate a trade deal.
Beyond Huawei, however, there is resistance among China’s Communist Party leaders to U.S. demands for structural changes the Trump administration has said are needed to protect U.S. intellectual property and ensure fair competition.
At a May 13 meeting of two dozen top party leaders, Vice Premier Han Zheng, known as a supporter of foreign participation in China’s economy, criticized the proposed accord with the U.S., according to people with knowledge of the matter. He and other senior leaders, these people said, were especially dissatisfied with the U.S. insistence it wouldn’t lift tariffs even if Beijing commits to making policy changes.
Mr. Xi himself is an unabashed nationalist who believes in the Communist Party’s right to rule and resents the West’s lecturing on democracy. Under his leadership, the Chinese government has sought to bulk up state-run companies, calling them the foundation of party rule, and stepped up censorship and controls on various aspects of the civil society.
“The U.S. side thinks its pressure can help push China to move things forward,” said a Chinese official. “But within China, that pressure is being likened to foreign forces that humiliated China and made it surrender in the last century.”
After talks broke down in May, tougher U.S. actions against China have only hardened attitudes in Beijing about making further concessions. Although Mr. Xi has accumulated vast power, he still needs to forge consensus within the Chinese bureaucracy and not be seen as caving to Washington.
Immediately after the May Politburo meeting, China’s state media launched a propaganda blizzard blaming the trade stalemate entirely on the U.S. Some state media labeled those advocating a deal with the U.S. as “capitulators.”
Resistance within the Chinese bureaucracy to U.S. demands is mounting. For instance, some economic agencies had started discussing ways to introduce fairer competition among state-owned, private and foreign firms based on the concept of “competitive neutrality”—meaning state firms wouldn’t get favored treatment. The Trump administration incorporated the concept in its revamp of the North American Free Trade Agreement.
But during recent discussions in Beijing, according to people familiar with the matter, officials overseeing state firms and big industries dominated by state interests, such as telecommunications, pushed back against the concept, saying it is a Western way of doing things that won’t work for China. The only group that has welcomed the concept so far is China’s financial regulators, who believe allowing greater foreign participation in banking and other financial sectors could help make the industry more competitive.
In their accounts of the weekend, Chinese state media didn’t mention the Huawei concession or the farm purchases, usually a sign that the government wants to manage potential domestic fallout. For some critics, the deal hardly counted as a win.
Hu Xijin, editor in chief of China’s Global Times, a nationalist tabloid, took to Twitter in English to complain: “The US made big concessions? US companies selling equipment to Huawei is just going back to one and a half months ago; no new tariffs is going back half a month ago. China will actually buy more American goods and pay the cost of reforms. Some Americans still unsatisfied?”
At the same time, both sides have shown willingness to give some ground. China bought 544,000 metric tons of U.S. soybeans before the Trump-Xi meeting Saturday. Mr. Trump canceled a speech by Vice President Mike Pence that was scheduled before the G-20 meeting and was to have dealt with Chinese human-rights offenses, said people briefed on the plans.