Trade Truce by China and U.S. Gives Both Sides Political Breathing Room
The agreement reached by President Trump and President Xi Jinping of China to effectively pause their trade war and work toward a pact appears to be aimed at giving the two leaders some political breathing room after an escalating fight has begun inflicting economic damage on both sides of the Pacific.
The temporary truce, forged over a working dinner on Saturday night in Buenos Aires, does little to resolve the deep differences between the two nations and is more a political agreement than a substantive one. Both sides immediately positioned the cease-fire as a domestic victory while staking out areas where they would not compromise.
“It’s an incredible deal. It goes down, certainly — if it happens, it goes down as one of the largest deals ever made,” Mr. Trump told reporters late Saturday night aboard Air Force One.
[Asian markets jumped on Monday after the deal, a sign of exuberance tempered by a sense that the fragile peace may not last.]
China’s foreign ministry in a statement characterized the meeting as “very successful,” adding, “The two sides proposed a series of constructive plans on how to properly resolve existing differences and problems.”
The political need for some type of truce has increased as both countries begin struggling with signs of economic softening. China’s debt-heavy economy is slowing more than experts expected, while there are areas of emerging weakness in the United States as the effects of Mr. Trump’s tax cuts and spending increases begin to wear off. The trade war has also started to bite American farmers and some manufacturers, while the United States stock market has erased almost all of its 2018 gains amid trade and economic jitters.
But the tough road to a more comprehensive trade deal could be seen in the disparity between the official statements released by the United States and China, with the two documents essentially disagreeing over what was agreed to by Mr. Trump and Mr. Xi.
The United States emphasized the 90-day window it has set for trade talks, while China made no mention of it. And the White House, which has accused China of “stealing” technology from American companies, said that Mr. Xi had agreed to “negotiate immediately on forced technology transfer, intellectual property protection, non-tariff barriers and cyber theft.” The statement from China said only that the two countries would “work together to reach a consensus on trade issues” but did not mention intellectual property.
“The president has been clear that if there is a real deal he’s willing to give some period of time to get this firmly negotiated — that’s the direction he’s given to the team,” Steven Mnuchin, the Treasury secretary, said in a telephone interview on Sunday. “On the other hand, if there’s not a real deal, he said he will proceed with the tariffs.”
The cease-fire leaves American tariffs in place on $250 billion in Chinese goods but it removes — for now — Mr. Trump’s threat to increase the tariffs on $200 billion of those goods in January to 25 percent from 10 percent and to impose tariffs on all imports from China. The agreement sets a March 1 deadline for a trade deal, which is expected to be brokered by Mr. Mnuchin and Robert E. Lighthizer, the United States trade representative.
The agreement hints that the initial 25 percent tariffs that Mr. Trump placed on $50 billion in Chinese goods last summer could become permanent — if not in place for a protracted period. Those initial tariffs were intended to largely spare American consumers while targeting imports that the administration sees as a threat to national security — like nuclear reactor parts, spacecraft and aeronautical gear. The tariffs were also imposed on a variety of other products, like agricultural equipment, that Beijing has made a priority with its Made in China 2025 industrial policies program.
Mr. Mnuchin suggested that all the tariffs could be phased out as China meets its commitments to make changes over a period of time. It is possible that the initial tariffs on $50 billion of Chinese imports could be in place longer, until it is clear that China has kept its promises of wholesale structural changes.
“The proposal that came back and was discussed between the presidents included both reducing the trade deficit and also included very specific structural issues,” he said. “It includes commitments on technology, to currency to cyber. There are a lot of important issues to be addressed here.”
Waiting for China to actually carry out its trade promises is a high bar to set for removing the tariffs. American and Chinese negotiators have been wrangling over many of the same questions of intellectual property protection, investment access and other issues since China joined the World Trade Organization in 2001.
Until Saturday evening, China had been insisting on an immediate repeal of all tariffs as part of any deal. “China has emphasized many times that United States bullying and pressure aren’t working with China,” Gao Feng, the Commerce Ministry spokesman, said in a briefing on Oct. 11.
But Saturday’s deal left American tariffs in place while including a Chinese agreement to resume buying American agricultural and energy products. The dollar value of the Chinese resumption of purchases was not announced. But China’s willingness to reach any deal for purchases while considerable tariffs remain in place suggested that Beijing officials, as well as Mr. Trump, were genuinely eager for a truce.
It is likely to be a source of tension within the Trump administration over how gradually China is allowed to make policy changes or if the president will insist on a rapid transformation. While Mr. Mnuchin has been an advocate for talks, other advisers, like Peter Navarro, the director of the White House trade office, have warned Mr. Trump about agreeing to what would ultimately amount to a hollow deal.
In the interview, Mr. Mnuchin played down divisions within the economic team. He said that it was helpful to have Mr. Navarro, with whom he has occasionally clashed on trade policy, at the table to show the Chinese that the White House is a united front.
Mr. Mnuchin also said that China put a significant number on the table that went beyond the $70 billion of American goods that Beijing promised to purchase in June if Mr. Trump halted his tariffs.
China experts in the United States had mixed views about the agreement, with some expressing optimism that a dialogue would continue but others saying they feared that China’s history of promising changes, but not delivering, would repeat itself. And they pointed to Mr. Lighthizer’s recent statements that China had made no progress toward addressing the administration’s concerns as a harbinger for tough negotiations.
“We put off tariffs for 90 days in exchange for the same things we’ve been negotiating with the Chinese with for over a year,” said Derek Scissors, a China specialist at the American Enterprise Institute. “Why would this 90 days make any difference?”
He added: “Are the Chinese going to change their development model in the next 90 days? No.”
The most important long-term consequence of Saturday’s deal may be felt in the Chinese auto industry, which has been preparing for a big push into the American market as car sales have slumped sharply this autumn in the slowing Chinese economy.
Five Chinese automakers have disclosed plans to enter the American market in 2020. In mid-November, GAC, one of China’s biggest automakers, showcased its vehicles, not to mention its global ambitions, at the annual auto show in Guangzhou, the southeastern Chinese city where the automaker is based.
“We have accelerated internationalization plans and built a global network,” said Yu Jun, GAC’s president, before projecting overhead a giant map with scarlet arrows fanning out from southern China to Europe, the Middle East and the United States.
Administration officials have said they hope to prevent a repeat of what happened from the 1970s to the 1990s, when an influx of Japanese and then South Korean cars resulted in heavy job losses in Michigan, Indiana, Ohio and Wisconsin — states that Mr. Trump is counting on for his re-election campaign in 2020.
China is already the world’s largest car market and biggest maker of cars and car parts. General Motors imports Buick Envision sport utility vehicles from its Chinese joint venture into the United States. Since July, it has faced a 25 percent American tariff on these vehicles, though it has asked the Trump administration to exempt them. The 25 percent tariff is in addition to the United States’ longstanding tariff of 2.5 percent on cars from all over the world.
By contrast, China’s tariff on car imports from all over the world was 25 percent until last summer, when it cut the tariff to 15 percent. But China added a 25 percent tariff just on American cars over the summer, for a total of 40 percent, to retaliate against Mr. Trump’s new tariffs.
In a cryptic tweet late Sunday night, Mr. Trump suggested that China would reduce those retaliatory tariffs on the small number of American cars exported to China. But Chinese statements on the weekend agreement included no mention of changes in auto tariffs.
Mr. Lighthizer, an Ohio native who played a key role in car sector negotiations with Japan in the 1980s as deputy United States trade representative under President Ronald Reagan, underlined the Trump administration’s focus on cars last week by threatening to raise American tariffs on Chinese cars to 40 percent.
But Michael Dunne, the chief executive of ZoZo Go, a San Diego automotive consultant, said that even at 25 percent, the tariffs would discourage Chinese automakers. “It gives them reason to pause and reset their strategy,” he said.
Mr. Dunne predicted that Chinese automakers would look for ways to assemble cars in the United States instead — just as Japanese automakers did in the 1980s and 1990s when they faced American trade barriers, initially shipping parts from Japan for assembly and later shifting supply chains to the United States.
But building factories is time consuming. And the Trump administration included some auto parts in the 25 percent tariffs last summer and a lot of auto parts in the 10 percent tariffs this autumn, which could prove costly for Chinese companies.