As he signed an initial trade deal with China on Wednesday, President Donald Trump promised further negotiations to tackle some of U.S. companies’ most long-standing complaints would begin “very, very shortly” and that tariffs on some $360 billion in imports from China would remain in place as leverage.
What he didn’t say is that almost no one thinks those negotiations aimed at getting China to rein in its vast web of industrial subsidies and reduce the role of state-owned companies in the economy are likely to either be easy or come to fruition anytime soon.
That means American businesses are likely to face another year or more of the tariff bills and supply chain turmoil that prompted many to plead for the president to sign the partial deal.
Trump and his team have insisted from the moment he first deployed his tariffs against China in 2018 that they have provided him the pressure needed to negotiate with a rising economic power that has perplexed and outfoxed his predecessors.In phase one, U.S. officials insist the duties helped deliver meaningful Chinese commitments on intellectual property, currency, and the opening up of its financial services sector. As well as promises of a $200 billion Chinese spending spree that, if it works as outlined in the deal, will increase exports to China to a record of more than $250 billion this year and more than $300 billion in 2021.
The same strategy with tariffs, they argue, applies to phase two. “I’m leaving them on, because otherwise we have no cards to negotiate with,” Trump told CEOs like Boeing Co.’s David Calhoun attending Wednesday’s signing.But the reality many trade experts see is a China that has shrugged off that pressure so far and is unlikely to bend to more, even if Trump is re-elected later this year. That Trump was forced last year after a summer of escalation that unnerved financial markets to break his pursuit of a comprehensive deal into segments is a testament to that, they argue.“The Chinese said no to most of the elements that would be in a phase two agreement in the face of pretty massive and sustained tariff pressure,” said Edward Alden, a senior fellow at the Council on Foreign Relations. “The Chinese are not going to change their economic model to appease the United States. That’s one very clear takeaway from this whole exercise and the U.S. and the world are going to have to learn to live with that.”
‘It was tougher’
During a moment of levity, Robert Lighthizer, Trump’s top negotiator with the Chinese, conceded to Trump on Wednesday that the negotiations with China hadn’t necessarily gone as he expected.“I have one question: Was this an easier job or a tougher job than you thought?” Trump asked the veteran Washington operator as he introduced him to the crowd.
“It was tougher than I thought,” Lighthizer responded to laughter.
Trump’s trade czar earlier told reporters that even if negotiations for a phase two didn’t succeed, the tariffs that remained in place would go some of the way to resolving the situation with industrial subsidies and other lingering issues. Lighthizer also foreshadowed what sounded like potentially years of negotiating ahead.
“It’s unrealistic to think you’re going to have one agreement with one stroke of the pen that resolves all of the problems between the United States and China,” he said.That is not the message that businesses want to hear.In statements welcoming the phase one deal on Wednesday, U.S. industry groups almost universally called for an urgent start to the negotiations for a substantive second phase.
“We hope this deal will usher in a new era of trust between both countries and pave the way for Phase 2 negotiations to begin in a timely manner,” the U.S. Chamber of Commerce’s Tom Donohue offered, pointing to the need to address not just the issue of subsidies but Chinese restrictions on digital trade as well as non-tariff barriers still facing other U.S. businesses in China.Some industry groups also made clear their plea for urgency wasn’t because of what was left undone, but the tariffs remaining in place. The Outdoor Industry Association said the duties its members were paying on imported products like tents, sleeping bags and ski gloves had surged to $7.7 billion between January and November of 2019 even as imports of some affected by tariffs dropped by almost 20%.
With the president maintaining his tariffs until a second phase is concluded, bills like those are likely to continue to build.“I think the phase two negotiations will begin. But I think the prospect for an agreement that addresses these issues is really remote,” Wendy Cutler, a veteran of past negotiations with China now at the Asia Society, told Bloomberg Television. “It’s just difficult for me to see Xi Jinping letting his negotiators really move on these issues and curtail subsidies and curtail the operations of its state-owned enterprises in any meaningful way.”Which also means that further trade conflicts between the U.S. and China may lay ahead for Trump, said Chad Bown, a former member of President Barack Obama’s Council of Economic Advisers.
“This may be as much as he wants to stomach in terms of negotiating with China,” said Bown, who is now at the Peterson Institute for International Economics. “But this is definitely not going to be the end when it comes to the longer run conflict between these two economic systems. That is just still the fundamental issue of our time and we are no closer to resolving that today than we were two years ago before the trade war started.”
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