Donald Trump turns the screw in US-China trade dispute
Threat to raise tariffs fuelled by fury at Beijing’s tactics and confidence in economy
Last Sunday started out quietly by Donald Trump’s standards. His first tweet was about the appointment of a new head for the US immigration and customs enforcement agency. His second lamented the outcome of the Kentucky Derby horse race, after the original winner was controversially disqualified.
Then came the bombshell: in two more posts, the US president turned the screws on Xi Jinping, his Chinese counterpart, in their high-stakes negotiations to end a year-long trade dispute between the countries. If Beijing did not stop trying to “renegotiate” previously agreed provisions of the draft agreement, the president wrote, US tariffs would rise on Chinese goods worth hundreds of billions of dollars by Friday. After months of suggesting that the trade talks were going well, the president’s suggestion that a deal was in peril rattled global markets and unnerved policymakers worldwide.
According to senior administration officials and people briefed about the negotiations, Mr Trump’s irate messages did not come out of nowhere.
They were driven by anger at perceived backtracking by China on some commitments it had made earlier in the talks, mounting confidence that the US economy and markets could withstand more confrontation if necessary, and politics — the president needed to prove to the growing ranks of China hawks in Washington that he would not settle for a weak agreement.
“When all the dust settles . . . we have to show that this was a worthwhile negotiation,” said Chuck Grassley, the veteran Iowa Republican senator.
“The president is the one who has to step up and sell this deal, putting his reputation — and possibly the 2020 election — on the line,” said Derek Scissors, a resident scholar at the American Enterprise Institute, a Washington-based think-tank. “He’s not going to take that risk if he feels he’s being jerked around.”
In recent days, US negotiators have squarely blamed China for the eleventh-hour impasse. “Over the course of the last week or so we have seen an erosion in commitments by China,” Robert Lighthizer, the US trade representative, told reporters on Monday.
Mr Lighthizer did not say in which areas Beijing had pulled back on its promises but people familiar with the negotiations say they included two issues at the heart of the dispute: codifying in law protections for US intellectual property and preventing the forced transfer of technology.
Another problem was that Mr Xi’s negotiators had not provided a full Chinese text of a possible agreement, further irritating Washington.
Steven Mnuchin, the US Treasury secretary, said there had been “some signs” of a Chinese shift during negotiations in Beijing last week. But when he and Mr Lighthizer returned home over the weekend “it looked like we were going substantially backwards”. That prompted the two cabinet secretaries to “update” Mr Trump, precipitating his tweets.
Since then, both sides have kept a small window open for negotiations. Mr Trump declined to break off the talks and Beijing decided to plough ahead with plans to send Liu He, Mr Xi’s lead negotiator, to Washington later this week, albeit delayed by a day and with a smaller delegation.
“China got greedy and wanted to renegotiate entire parts of the deal,” said one person familiar with the talks. “The question is whether Liu comes to Washington with a mea culpa, saying he is prepared to negotiate on all outstanding issues, or will he come to say that if the US escalates, China will escalate right along with it.”
Others dispute such assertions, citing related Chinese amendments to a host of existing regulations — including those governing trademarks and fair competition — and a new foreign investment law. “Liu He is a straight-shooter,” said James Zimmerman, a Beijing-based partner at Perkins Coie, the law firm. “I can’t imagine he reneged on terms that are clear and actionable.”
Notwithstanding the loss of trust in recent days, many analysts believe that China and the US want to avoid a new round of tariffs. “Beijing would still like to have a trade deal that has the potential to defuse friction in the relationship and put it on a more stable footing — that’s their goal and they don’t want to throw that out,” said Bonnie Glaser at the Center for Strategic and International Studies, a Washington-based think-tank. “It’s significant that Liu is coming: if Liu didn’t have Xi’s support he would have been pulled.”
A person close to the Chinese negotiating team echoed that view. “Liu He has been entrusted with getting this deal done — that’s his mandate,” the person said. “To walk away doesn’t get you any closer to getting it done.”
Andy Rothman, an investment strategist at Matthews Asia, believes that Mr Trump would also rather have a deal than a full-blown trade war. “The underlying motivation driving his desire to negotiate with Xi hasn’t changed,” he said.
“Escalation will depress US corporate profits and hurt American consumers, leading to a weak equity market . . . But the president has decided once again to treat the talks between the world’s two largest economies as if it’s a Manhattan real estate deal.”
For many US executives who had hoped an agreement ending the uncertainty would be signed as early as this week, the sudden threat of new tariffs is deeply worrying. “We are concerned that this gets worse and instead of a tariff regime that lasts for a few months, we see a tariff regime that lasts for years,” said David French at the National Retail Federation.
“The choice of tariffs as a tool is an error on the part of the US. The Chinese are trying to get out of this conflict with the most modest concessions possible, and that’s an error on their part,” he added.