Trump’s tariff threats come after China backpedals

Trade

The chief U.S. negotiator is said to have been angered by the Chinese government’s attempts to re-open aspects of the deal the U.S. considered settled.

President Donald Trump’s vow to escalate a U.S.-China trade war by imposing a 25 percent tariff on essentially all Chinese goods was fueled by Beijing’s attempt to backtrack on certain commitments it had made in the course of trade talks, according to people close to the matter.

U.S. Trade Representative Robert Lighthizer returned from China last week angered by the Chinese government’s attempts to re-open aspects of the deal the U.S. had considered settled. The issues included Beijing taking a step back from making law changes involving the transfer of proprietary technologies from U.S. companies doing business in China, the people said.

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The trade chief shared his frustrations with Trump, who then issued tweets that marked a sharp change in tone since late April, when he was optimistic of reaching a deal. He had even told reporters he could “soon” be hosting Chinese President Xi Jinping at the White House.

The exchange underscores the outsize role Trump – a self-described “tariff man” – plays in concluding trade talks that have jarred financial markets and strained relations with the second-largest economy in the world.

The president’s latest tariff threat is also a clear indication that he believes most leverage is still on the U.S. side, as it tries to force Beijing to address theft of U.S. technology amid a race to dominate the industries of the future.

Trump and Lighthizer both believe that the tariff threats will force the Chinese to stick to agreements they’ve made in the negotiating process, and the president is unwilling to allow China to delay in hopes of “running out the clock” and potentially dealing with a new president after the 2020 elections, said one person close to the matter.

An administration official not authorized to speak publicly on the matter said China had looked to an even earlier end to trade hostilities — through a possible undoing of Trump’s presidency as a result of the Mueller investigation. However, Beijing should now realize there is a chance Trump could be in office until 2024, the official said.

A Chinese government spokesperson on Monday said Beijing would still send a delegation to Washington this week for more talks, but it was unclear whether Chinese Vice Premier Liu He would be leading the delegation, as previously planned.

“[We had hoped] to make progress in our trade talks and [we] hope the U.S. side can work together with us and move in the same direction so we can achieve a deal that can benefit both sides,” Chinese Foreign Ministry spokesperson Geng Shuang told reporters in Beijing. “Everyone in China and abroad is very concerned about the next round of talks, and we are also learning about the relevant changes.”

The South China Morning Post, a partner publication of POLITICO, reported Liu could delay his visit to Washington by a few days or skip the meeting altogether.

Michael Pillsbury, a Hudson Institute scholar who directly advises Trump on China issues, said the president was frustrated not only by China but also by the positive view of the talks Treasury Secretary Steven Mnuchin and White House adviser Larry Kudlow had provided in public comments.

“The president, quite rightly, wants to take control of the narrative himself by tweeting, rather than putting up with this positive spin which has not been accurate,” he said.

Pillsbury wouldn’t say what China had attempted to backtrack on following last week’s meetings in Beijing, but said the country’s attempt to “renegotiate” the deal as Trump had noted was a clear sign that nationalist or hawkish forces in China were asserting themselves on what it viewed to be concessions.

“That’s what’s playing out right now, this so-called hawks vs. doves debate in Beijing, which I think the president is aware of partly because I have told him,” he said.

Pillsbury said the endgame of the talks has only just begun, whereas Mnuchin previously said that last week’s negotiating round and the Chinese delegation’s planned visit to Washington this week would prove decisive.

In a pair of tweets on Sunday, Trump outlined plans to raise duties on Chinese goods and target an even greater range of imports, following a 10th round of high-level talks last week in Beijing. The president complained the talks were going “too slowly” and that China was trying to renegotiate some provisions of a potential deal.

Trump has already imposed a 25 percent duty on $50 billion worth of Chinese goods and a 10 percent duty on an additional $200 billion worth of Chinese products. The 10 percent duty was scheduled to rise to 25 percent at the end of last year, but Trump put off that action after a meeting with Xi in early December.

The president said Sunday he now plans to raise the 10 percent duty on $200 billion of Chinese goods to 25 percent. The rise will take effect on Friday. Trump also said he would “shortly” be imposing a 25 percent duty on another $325 billion worth of Chinese goods.

Pillsbury said he didn’t view the president’s tweets as a bluff.

“The president’s concept all along is the tariffs get put on and then they get lifted as a reward for Chinese compliance with their commitments,” he said. “By adding more tariffs on Friday, if you go along with the president’s strategy, it creates new incentives to the Chinese.”

Others who have closely observed the talks say it’s uncertain now that a deal will be reached this week, as had been expected. Xi could be more reluctant to accept a deal now that Trump has made a new ultimatum.

Xi “was in a tough spot in terms of domestic politics as soon as the tweets hit, because it’s a rebuke of his leadership,” said Derek Scissors, a resident scholar at the American Enterprise Institute. “With regard to the talks, it depends on whether the U.S. can be satisfied with private concessions rather than public [ones].”

U.S. stock markets opened lower on Monday over worries about the state of the talks but rebounded by the afternoon. In early trading, the Dow Jones Industrial Average was down 340 points, or about 1.3 percent. Later, the Dow recovered somewhat, off about 200 points, or less than 1 percent, as of 2 p.m. The broader Standard & Poor’s 500 index was also down by less than 1 percent.

As of Monday morning, U.S. Customs and Border Protection officials could not provide information about how they would implement the tariff increase if it is to take effect on Friday. Normally, the trade office would issue a Federal Register notice instructing CBP to begin collecting the increased duties. Neither USTR nor the White House responded to questions on Monday about that procedural step.

There was also no word on when the 25 percent duty on the additional $325 billion worth of goods would go into effect.

Trump backed up his tariff threat in another tweet on Monday morning. “The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!” he said.