Is This Another Trade War Setback?

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Here we go again.

Yesterday, Chinese State Councilor and Foreign Minister Wang Yi said that China expects America to “remove all unreasonable restrictions” in future trade war negotiations. He continued, adding that while his country doesn’t want to usurp the U.S. as a world leader, the Chinese Communist Party still demands respect from American trade officials.

“China-U.S. relations today have once again come to a cross roads,” Wang said via translator at a U.S./China dinner meeting, hosted by the U.S.-China Business Council and the National Committee on U.S.-China Relations – nonprofit organizations founded when the two nations were on far better terms.

“While China opens wider to the U.S. and the rest of the world, we expect the U.S. to do the same to China and remove all unreasonable restrictions,” he added.

“In a word, China’s efforts and achievements of reform and opening up in the past several decades have been widely recognized. They should not be deliberately ignored or denied.”

These “efforts and achievements”, however, haven’t even scratched the surface of President Trump’s demands.

Especially when it comes to intellectual property (I.P.) theft – a main point of concern for U.S. trade officials as the trade war enters its second year.

It’s something that Western corporations have complained about for decades. They’re often forced to part with key technologies in order to do business within Chinese borders, giving China an unfair competitive advantage.

Even worse, they started blocking certain companies from entering altogether.

Mastercard and Visa, for example, struggled mightily to pierce the Chinese market for years, all while UnionPay, a state-run payment processor, has expanded globally. This kind of behavior has, over time, pushed Western companies out of untapped markets.

Which in turn has limited growth.

Not for Chinese companies, though – they just keep getting bigger and bigger, feeding into the flailing Communist Party.

Over the last two years, however, China has started to allow more companies in. Whether that’s a product of Trump’s tariffs is unclear.

But what is crystal clear is that China just recently passed a new foreign investment law that will allow Western companies access to the Chinese securities brokerage industry. The law also attempts to improve I.P. protection and reduce I.P. theft.

For China’s sake, I hope it works. The trade war has taken its toll on the Chinese people – something that Wang recognized in his remarks last night.

“The trade frictions between China and the U.S. in the last year have inflicted losses on both countries, losses that should not have happened,” he said.

“[We should] explore new areas of cooperation.”

And while Wang’s words are certainly encouraging, they don’t mean anything if China can’t enforce I.P. theft regulations. For the time being, foreign securities brokers are allegedly protected.

But how much intellectual property is there really in the securities business? Tech companies, the stock market’s lifeblood since 2009, are the ones being raided by Chinese copycats. The sector’s collective I.P. is worth billions (if not more) and has long been the “crown jewel” of tech thieves in the Far East.

So, unless China makes some actual concessions where it matters, don’t get your hopes up about a smooth trade war resolution. Wang’s statement may have seemed friendly, but it also came with plenty of posturing when he asked the U.S. to “remove all unreasonable restrictions.”

Do you know what’s truly unreasonable? Asking America’s “breadbasket” firms to turn over their trade secrets time and time again.

And until China can protect foreign entrants, specifically U.S. companies, uncertainty will continue to sway the market.

Even if the American economy can stave off a recession in 2020.

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