China expects tough negotiations in trade talks with the Trump team this week

  • China expects hard trade negotiations with Trump administration officials this week, a member of the Chinese delegation tells CNBC.
  • The official says the delegation expects a lot of talk about cutting the trade deficit from the U.S. negotiators.
  • China and the U.S. are still far apart on trade issues, officials on both sides say, even as Presidents Xi Jinping and Donald Trump reportedly enjoy a strong personal relationship.

Chinese Vice Premier Liu He arrives in Washington on Tuesday for trade talks with the U.S. delegation led by Treasury Secretary Steven Mnuchin.

The visit, which is set to last five days, is meant to prevent trade tensions from spiraling into a trade war.

While President Donald Trump and his Chinese counterpart, Xi Jinping, are widely seen as having a strong personal relationship, officials on both sides say the countries are still far apart when it comes to trade.

Here is what the Chinese side expects heading into the talks:

Hard negotiations

The Chinese are expecting a tough week of negotiations, according to an official in China's delegation to Washington. The official, who declined to be named, told CNBC that China had been taken aback by the Trump administration's "not so polite" approach. But, he added, the Chinese side hopes to get the U.S. to agree to a set of principles in which each side negotiates as an equal partner.

Building trust is a key Chinese priority, Li Baodong, vice minister of foreign affairs, told CNBC.

"They need to sit down, talk, find a solution. Talk with each other," Li said in Beijing on the sidelines of a reception for the Boao Forum for Asia.

"A trade war is not a solution," added Li, who is also secretary general of the Boao Forum. "Both sides need to realize that. Hopefully, they can have a meaningful talk."

Focus on cutting the trade deficit

The official in China's trade-talks delegation said it was clear that the Trump administration's priority is to reduce the trade deficit. However, he said the Chinese feel they are being given moving targets.

Liu He, China's vice premier attends a news conference at the Great Hall of the People in Beijing, China, on Tuesday, March 20, 2018.
Qilai Shen | Bloomberg | Getty Images
Liu He, China's vice premier attends a news conference at the Great Hall of the People in Beijing, China, on Tuesday, March 20, 2018.

The deficit depends on who is buying what and is not entirely within their control, and he pointed out that the U.S. economy is improving. "When Americans get higher income, they purchase more products. And most are from China," he said. "So it is hard to understand their logic."

At a conference in Tokyo, the U.S. ambassador to China, Terry Branstad, said the two sides are "very far apart." The ambassador, who has been engaged in trade discussions, said the Trump administration wants the Chinese to give a timetable on how China will open up its markets to U.S. products. Branstad said boosting the sale of liquefied natural gas would be on the table, and he said the U.S. would consider rescinding tariffs if China opened up its markets for autos and especially food.

The Chinese official would not reveal what China would offer, but, like Branstad, he acknowledged a wide divide between the U.S. and China.

"The gap is so big," he said. However, he added, the Chinese are willing to talk about everything.

Trump's ZTE tactic

Expectations are high that the negotiators will work out an exchange: a reprieve for Chinese telecoms company ZTE for greater purchases of U.S. agricultural products. According to reports, China could ditch tariffs on certain American farm crops such as soybeans and scale back some nontariff barriers such as quality-control inspections.

ZTE has effectively ceased operations after the U.S. Commerce Department banned American companies from selling components to ZTE as punishment for breaching a settlement after the Chinese company violated U.S. sanctions selling technology to Iran and North Korea.

The official on the Chinese delegation said Trump's recent tweets about ZTE show there is "space for negotiation." However, he said, from China's perspective, the Trump administration is using ZTE as a stick for the trade deficit.

"The U.S. side wants to use it to help [President Trump] realize his campaign promise," he said. "We see that."

The North Korea factor

A nongovernment source who had meetings with Chinese officials in recent days told CNBC the expectation is that trade tensions could ratchet down ahead of the June 12 summit between Trump and North Korean leader Kim Jong Un.

The American president has tweeted his gratitude for Xi and Beijing's efforts on North Korea as the U.S. seeks nuclear disarmament from the reclusive regime, also known as the Democratic People's Republic of Korea, or DPRK.

North Korean leader Kim Jong Un attends a grand military parade celebrating the 70th founding anniversary of the Korean People's Army at the Kim Il Sung Square in Pyongyang.
KCNA | Reuters
North Korean leader Kim Jong Un attends a grand military parade celebrating the 70th founding anniversary of the Korean People's Army at the Kim Il Sung Square in Pyongyang.

Li, the Chinese vice minister of foreign affairs, called Xi's involvement in the Trump-Kim summit a "tremendous contribution."

"President Xi himself made a special effort to push for peace talks between the DPRK and the U.S. Very critical moments," Li said. "The DPRK leader visited China twice within 40 days. President Xi had telephone calls with President Trump, a very critical moment. We wish the DPRK and also the United States to cool down and talk."

Li added: "Hopefully, the meeting between leader Kim Jong Un and American President Trump can bring more good results."