How Xi’s Last-Minute Switch on the Trade Deal Upended It

BEIJING — China’s leader, Xi Jinping, seemed confident three weeks ago that a yearlong trade war with the United States could soon subside, handing him a potent political victory.

He even made a speech saying China would protect intellectual property, encourage foreign investment, and buy more goods and services from abroad — all changes the United States had been demanding as the countries tried to negotiate a deal.

But just a week after that speech, Chinese negotiators sent the Americans a substantially rewritten draft agreement, prompting President Trump to accuse Beijing of reneging on terms that had been settled.

That has left hopes for a historic breakthrough in tatters.

In China’s top-down political system, where President Xi has amassed formidable power, it’s unlikely that anyone else would have had the authority — or, for that matter, the nerve — to fundamentally alter the emerging pact at this late date.

Having apparently made that decision, it is clear that Mr. Xi misjudged Mr. Trump’s eagerness for a deal and how far he could push the American negotiators, according to more than a dozen people, including current and former officials, researchers, lawyers, and trade experts familiar with the deal and how it fell apart.

Now Mr. Xi risks being backed into a corner, unable to compromise between his own positions and Mr. Trump’s.

A key issue was the United States’ demand that the agreement bind China to setting some of the changes in domestic law. For Mr. Xi, such a move could be seen at home as a sign of caving in.

Mr. Xi’s frenetic schedule and highly centralized style of policymaking may also have delayed decisions in the Chinese government about the prospective deal until dangerously late, said a former official, academics and trade group representatives.

“No doubt Xi has tightened the overall policy atmosphere so few want to voice opposition,” said James Green, who was the top trade official at the United States Embassy in Beijing until last August and is now a senior adviser at McLarty Associates, a Washington consulting firm. “And that doesn’t leave much room for the negotiators.”

Seasoned political insiders have been astonished by the whiplash reversal in the trade talks between the world’s two biggest economies.

Now, China’s leaders risk prolonging tensions with the United States by defending their decisions with combative, nationalist rhetoric that could narrow the room for a compromise, experts from both countries said.

“You’ll need a strong political decision to accept any compromises now,” Tao Jingzhou, a business and dispute resolution lawyer in Beijing, said in an interview. “The propaganda could turn up nationalist feeling that could further narrow the margin for negotiations.”

Chinese officials were not alone in thinking a deal was not far-off.

The United States Treasury Secretary, Steven Mnuchin, said late last month that talks were “getting into the final laps.” Chris Coons, a Democrat senator from Delaware who visited Beijing at that time, said Chinese officials had all said they wanted an agreement on the trade dispute.

“One of the things that was impressive was the extent to which every single person we met with delivered the same core message points on a few key themes,” Mr. Coons said in an interview in Beijing soon after his meetings with officials. “And the message on trade was, ‘We are making our best efforts to hear you and to reach an agreement.’ ”

But by May 1, Mr. Xi had demanded a substantial recast of the embryonic agreement that his chief negotiator, Liu He, had been haggling over for months with Mr. Trump’s team, people close to the negotiations said.

Several sources said the changes were discussed with other Communist Party leaders, which brought into focus worries that the proposed deal could make Mr. Xi and the party look as if they were bowing to pressure.

Soon after, the Chinese negotiators sent their American counterparts a version of the draft agreement in a Microsoft Word document, speckled with cuts and changes.

The revised document sent from Beijing was a “sea of red” revisions, said Christopher K. Johnson, a senior adviser at the Center for Strategic and International Studies in Washington, and a former senior China analyst at the Central Intelligence Agency.

The exact reasons Mr. Xi and other leaders waited so long before presenting the Trump administration with a new negotiating position are unclear.

Mr. Johnson and other American and Chinese experts offered differing views on what drove Mr. Xi to push for the changes.

Mr. Xi may have assumed, some said, that Mr. Trump was so eager for an agreement that American negotiators would swallow the last-minute changes.

Or, others said, Mr. Xi may have belatedly concluded that changes to Chinese laws demanded by the United States would be an affront to national honor. Some said Mr. Xi might have felt he had to act after the clauses drew criticism from party leaders who had not been briefed earlier.

Some experts believe China’s leaders may not have formally considered a full Chinese-language translation of the draft agreement — which had been negotiated using an English-language text — until later on.

“The devil is in the detail, especially for lawyers,” said Mr. Tao, the Beijing lawyer. “When you translate an agreement into an official text, there can be a lot of room for different interpretations.”

The leadership may also have misread the political landscape in the United States and guessed that Mr. Trump was so eager for an agreement that it was time to press for an advantage.

“The most likely explanation is insufficient policy coordination, not an intentional effort to deceive the Americans,” said Scott Kennedy, a senior adviser at the Center for Strategic and International Studies in Washington who researches Chinese economic policy.

“The impression that Trump wanted a deal for the stock market may have given them some comfort and space, that they thought they could push back,” he said.

The Trump administration had demanded stronger penalties for violating foreign patents and tighter laws to prevent the Chinese from demanding that foreign businesses transfer critical technologies. And the administration sought changes to cybersecurity laws that China’s national security establishment saw as interference.

These changes would require authorization from China’s national legislature.

“These conditions that the Americans raised for an agreement, at least from the political point of view, are extremely difficult to accept,” said Cui Liru, a former president of China Institutes of Contemporary International Relations, a prominent state research group. “It is almost asking the change of China’s political system.”

The American negotiators read China’s refusal to enshrine its commitments in law as an indication that the Chinese were making promises they did not intend to keep.

China’s request that the United States remove all new tariffs as part of a deal was also difficult to accept.

The 25 percent tariffs imposed last summer on $50 billion a year of Chinese goods cover some categories deemed critical to national security, such as nuclear reactor parts used by the United States Navy. Democrats and Republicans alike have been leery of scrapping these tariffs, which they hope will prevent critical suppliers from moving to China.

The speed with which the two governments descended into verbal mud-wrestling and new tariffs and counter-tariffs surprised even seasoned analysts.

After the negotiations broke off on Friday and Mr. Trump announced a fresh round of tariffs on China, Mr. Liu, China’s chief negotiator, appeared to hesitate between tough talk and mild words.

Speaking to Chinese journalists in Washington, Mr. Liu laid out “matters of principle” for Beijing that he said must be respected in the talks. On the other hand, Mr. Liu said the differences were small and nothing unusual.

“I think these are small complications that are normal in bilateral negotiations,” Mr. Liu said. “I’m cautiously optimistic about the future.”

As the deal unraveled, Communist Party-run media outlets flipped from muted restraint about tensions to daily salvos rebuking the United States and dismissing any criticisms of China.

The official Chinese news media has described the United States this week as an “all-out bully,” a “paper tiger” and a schemer who, as in an ancient Chinese tale, entraps a guest by inviting him to a banquet.

Xinhua, the official news agency, suggested that the United States was acting like a deluded colonialist holdover.

“If anyone today regards China as the China of old, prey to dismemberment, as a ‘soft persimmon’ that can be squeezed at will, their minds are stuck in the 19th century and they’re deceiving themselves,” Xinhua said in an editorial on the breakdown in trade negotiations.

“The Chinese government is preparing the public for a protracted and costly trade war, while remaining open to a face-saving deal,” said Jessica Chen Weiss, an associate professor of government at Cornell University who studies Chinese foreign policy and public opinion.

The combative words threaten to complicate and prolong the trade dispute, even if Mr. Trump or Mr. Xi desires a truce.

Mr. Xi’s strategy of engaging in a war of words against other countries has often overreached. In a dispute with South Korea over Seoul’s decision to let the United States deploy an antimissile system, China struck a hard line against the country — only to find itself a year later in a losing position with limited options.

“It could need a good six to 12 months before we get back to a serious deal in the works,” said Mr. Johnson, the analyst at the Center for Strategic and International Studies.

Still, the Chinese government seems to be leaving some room for flexibility. The editorials generally avoid personal attacks on Mr. Trump. And Mr. Xi has not publicly commented on the trade tensions, leaving room to subtly shift his demands.

Mr. Trump said Monday that he would meet Mr. Xi during a Group of 20 leaders meeting in Osaka, Japan, next month. But such a meeting would probably at best pave the way for more talks.

“It is very hard to think China will cave in or surrender to these pressures,” said Wang Yong, the director of the Center for International Political Economy at Peking University. “Public opinion definitely matters.”


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