Liu He can expect another lecture about China’s ballooning trade surplus with the United States when he visits Washington next week in the second round of talks.

The Chinese vice-premier and economic adviser to President Xi Jinping headed Beijing’s team in the opening discussions last week with the US delegation, led by Treasury Secretary Steve Mnuchin.

During the two-day talkfest, the White House demanded that China cut the trade deficit by at least US$200 billion and called for a halt to state subsidies for high-tech industries under the ‘Made in China 2025’ policy. The meeting ended without any noticeable progress.

“In Washington, a lack of emphasis on policy coordination has enabled various parts of the US government to interpret [President Donald] Trump’s rhetoric on China as permission to pursue their preferred initiatives,” Ryan Hass, a fellow at the Brookings Institution and the former director for China, Taiwan and Mongolia at the National Security Council, said.

Decline

“The result has been a cascade of near-simultaneous actions – on Taiwan, Tibet, trade, technology, law enforcement, and maritime issues – which have overloaded the circuits in Beijing,” he continued.

“Such an absence of prioritization in the relationship has removed any pretense of American seriousness in seeking to resolve specific problems, and instead has reinforced suspicions in Beijing that America’s efforts are animated by anxiety about its decline and China’s rise.”

Indeed, “anxiety” would aptly describe the latest trade data released by the General Administrations of Customs on Tuesday.

In April, the US deficit with China spiraled to $22.19 billion compared to $15.43 billion a month earlier. It was also considerably higher than during the same period last year.

Official figures also showed that for the first four months of 2018 the gap expanded to $80.4 billion compared to $71 billion year-on-year.

To underline the depth of the problem Washington is facing, the deficit with China hit a record $375.2 billion in 2017.

Apart from that, at the heart of a dispute which has dragged on since the end of last year, is a row about “advanced technologies” and Xi’s high-profile ‘Made in China 2025’ industrial policy.

This was rolled out in 2015 and aims to turn the country into a technological powerhouse.

“The core of the US position is that China has become a genuine market economy on an expedited schedule and that the United States reserves the right to be judge and jury in determining compliance,” Scott Kennedy, a senior fellow at the Center for Strategic and International Studies, wrote in a commentary about the talks.

Diplomacy

“Even though the two sides are currently very far apart, deft and sophisticated diplomacy and a willingness to compromise by both sides could help us get through what could be a very hot summer,” he added.

With so much at stake, finding common ground will be challenging even for Liu, one of the key architects of Beijing’s economic policy and a Harvard man.

Yet in the end, not even his Ivy League connections will cut the ice if China’s mushrooming trade balance continues.

“We don’t expect all core differences in the US-China trade relationship to be resolved,” Wang Tao, the chief China economist in Hong Kong for UBS, wrote in a recent report.

Now, that is certainly a sobering thought for Trump … and Xi.

Read: Major sticking points remain after US-China trade talks