ARI SHAPIRO, HOST:
Trade negotiators from China and the U.S. are resuming talks in Shanghai, and both sides are downplaying chances for a real breakthrough.
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LARRY KUDLOW: I wouldn't expect any grand deal.
SHAPIRO: That's Larry Kudlow, director of the White House National Economic Council speaking Friday on CNBC.
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KUDLOW: I think talking to our negotiators, they're going to kind of reset the stage and hopefully go back to where the talks left off last May.
SHAPIRO: Wendy Cutler is a veteran U.S. trade negotiator, and she joins us to preview the latest season of this long-running drama. Welcome back, Wendy.
WENDY CUTLER: Thank you, Ari.
SHAPIRO: Did last season end on a cliffhanger? Remind us what happened when talks left off in May.
CUTLER: Well, the talks broke down last May, and this was really over the issue of which negotiating text to work off of. The U.S. had sent China a text with about 150 pages of what the U.S. thought had been agreed upon and was quite surprised when China sent the text back with about 30 pages just crossed out of the text. And as a result, the talks broke down.
SHAPIRO: What's the issue that is making it so difficult for negotiators to make a deal?
CUTLER: There are a lot of difficult issues on the table, including how to address the current tariffs that have been put in place. China wants all those tariffs lifted. The United States wants to keep some in place. And there's a whole range of what we call structural issues whereby the United States is asking China to curtail its industrial subsidies, to stop its practices of forcing U.S. companies to turn over their technology and to strengthen its intellectual property protection regime, as well as enforcement of its intellectual property laws.
SHAPIRO: Yeah. The U.S. is asking China to make some really sweeping changes beyond who buys what and what they pay for it. Is China seriously entertaining any of this?
CUTLER: My understanding is yes they are. With respect to forced technology transfer, I think China is coming to grips with the fact that this is an unfair trade practice and that they need to change their existing practices trying to force our companies to hand over their technology secrets to their potential Chinese competitors.
SHAPIRO: Wow. If China really did enforce technology transfer, that would be huge. I mean, we've heard a lot of American farmers saying, yes, this is painful, but it'll be worth it in the long run if we get a big breakthrough. That sounds like if it happened, it would be a big breakthrough.
CUTLER: It would be a tremendous breakthrough. But what will be key is that China actually enforces the obligation that it's undertaken. And that has prevented progress in the past. And that's why this administration is pressing so hard for a strong enforcement mechanism.
SHAPIRO: President Trump has been very black and white, as he is on so many things, when he discusses this. He says trade wars are easy to win. The standoff has been good for American manufacturers, even though the evidence suggests that's not necessarily true. Yesterday, he tweeted that, for China, until now, the U.S. has been easy pickings. Is his objective clear here?
CUTLER: I don't think so, and I think China is confused about what the U.S. is seeking in these negotiations. Some days, it seems to be that the U.S. just wants to see increased purchases and the reduction in the U.S. bilateral trade deficit with China. Other days, it seems these structural issues are the most important. And so this has confused the Chinese, and I think as a result has made this negotiation unnecessarily even more difficult than it would be.
SHAPIRO: President Trump also told reporters today the companies are leaving China to avoid the U.S. tariffs. Is that true? And if so, are they coming to the U.S. or are they going to some other country like Vietnam that doesn't have similar tariffs?
CUTLER: Well, there are anecdotes of U.S. companies but also Chinese companies that are leaving China in order to evade these tariffs. But at least for China, it seems that they're moving their operations to Southeast Asia and countries like Vietnam and not coming to the United States.
SHAPIRO: And is China making moves to try to be less reliant on the U.S. market as these talks drag on?
CUTLER: Absolutely. And I think important signal of this is that this coming weekend, China will be for the first time hosting the ministers of the Regional Comprehensive Economic Partnership negotiations, trying to unlock those negotiations so a deal could be reached by the end of this year. Unclear about whether this meeting will be successful but, wow, in the same week for the trade minister to be meeting with Ambassador Lighthizer and Secretary Mnuchin and then later in the week meeting with 15 ministers from all around Asia - what a busy week he's having.
SHAPIRO: That is former U.S. trade negotiator Wendy Cutler. She's now vice president of the Asia Society Policy Institute.
Thanks for speaking with us.
CUTLER: Well, thank you.
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