Early this month, the Chinese government sent the U.S. a trade deal draft that had been slashed from 150 pages — painstakingly assembled by both sides over five months of negotiations — to 105.
The move riled U.S. President Donald Trump and brought progress on the trade talks to a screeching halt, as Beijing surely knew it would.
To understand why China went ahead anyway, we must go back to late April, when Chinese President Xi Jinping’s schedule was packed with events in and around Beijing. The first was the second Belt and Road Forum for International Cooperation, on April 25-27, which brought together leaders from more than 30 countries.
While it was a moment in the sun for Xi, his disposition was far from sunny.
At the first forum two years ago, a large display at the event’s media center followed Xi’s every step as he strutted around the venue alongside other world leaders, with a confident smile befitting the head of a global superpower.
This year, images of Xi strolling were nowhere to be found. When the president began his address, at an unannounced time, the display abruptly popped up in the media center — almost as if the organizers did not want to show his gloomy countenance for long.
At the time, the world’s hopes were still high for a speedy U.S.-China trade deal, but Xi was no doubt aware that a tense domestic situation made a quick compromise extremely unlikely.
The night after the event, Xi, clad in a heavy coat, watched a lavish display of fireworks outside Beijing. Again he was alongside other world leaders and VIPs. The show was part of the opening ceremony of the International Horticultural Exposition, one of a string of big events organized as a lead-up to the 2022 Beijing Winter Olympics.
The fireworks did not put Xi’s mind at ease. The U.S. had not sent a delegation to either the Belt and Road forum or the gardening expo.
Voices within the Chinese Communist Party, growing louder day by day, were insisting that “an unequal treaty that codifies meddling in our domestic affairs into law is unacceptable.”
These cries came not only from the party’s conservative left but also from the rank and file — from the core of workers and management at state-owned companies, from industries that rely on subsidies for survival and from the bureaucratic institutions that protect them. The proposed deal threatened their interests.
When modern China was established seven decades ago, the party denounced the “unequal treaties” China signed under imperial rule, exemplified by the 1842 Treaty of Nanking with Great Britain, which ended the First Opium War, and the 1895 Treaty of Shimonoseki, which ended the first Sino-Japanese war.
The Shimonoseki agreement forced the Qing dynasty to pay an indemnity to Japan and hand over Taiwan. The dynasty would not last two more decades.
Whether the proposed deal between the U.S. and China really qualified as an “unequal treaty” is debatable, but regardless, it cut to the communist government’s heart. It would forbid forced technology transfers by a variety of both public and private means, theft of foreign technology or intellectual property, subsidies to state-owned enterprises and export subsidies given to all companies.
It is easy to understand the argument that the legal measures demanded by Washington were an unacceptable form of interference that violated China’s principles.
In late April, Xi was forced into an about-face in his negotiating tactics. The negotiating team, led by Vice Premier Liu He, one of Xi’s close aides, had focused too much on reaching an amicable resolution and stepped outside the bounds of the discretion granted by party leadership.
But the Xi-Liu axis would never compromise on the most vital points — those intertwined with Communist Party rule. This is “the last 10%” that U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin have said stood in the way of a deal.
The talks broke down not over that 10% but over the 90% that had already been agreed to by Liu and Lighthizer. Shuttling back and forth between Beijing and Washington for multiple rounds of talks, the two teams had collaborated on that 150-page document, which covered seven areas.
Liu must have felt some attachment to the draft. The text was carefully constructed, with the Chinese and English versions meticulously compared. Lighthizer, who negotiated successfully with Japan in the 1980s, examined it with an international lawyer’s eyes. The Chinese side even grew sick of his constant scrutinizing of the wording, sources familiar with the talks said.
Even so, the deal moved 90% of the way to its goal. Given Liu’s closeness with Xi, it should stand to reason that at least the overall outline of the agreement had the approval of China’s leadership.