July 19, 2019

Trade Fight With China Enters Overtime, With Tariffs a Costly Sticking Point

Trade Fight With China Enters Overtime, With Tariffs a Costly Sticking Point


WASHINGTON — The United States and China are pushing for a summit meeting in late April to complete a trade deal, while negotiators are still grappling over its terms and how they should be enforced.

Although much remains unsettled, one thing is becoming clear: The Trump administration will continue to hold the threat of tariffs over Beijing to ensure that it lives up to whatever commitments it agrees to in the final deal. That approach is prompting concern among American businesses that the economic damage and uncertainty caused by President Trump’s trade war could persist even once negotiations are resolved.

On Friday, a report commissioned by the nation’s biggest business lobbying group showed that the Trump administration’s tariffs are actually damaging an industry the levies were intended to protect. The report, by the U.S. Chamber of Commerce and the Rhodium Group, a research firm, said that Mr. Trump’s tariffs on $250 billion worth of Chinese goods were eroding the competitiveness of the America information technology sector — including companies that manufacture computers, electronics and telecom equipment, as well as provide services like cloud computing, computer-aided design and customer relations.

The report estimated that the tariffs, if they remain in place, would reduce United States gross domestic product by at least $1 trillion within 10 years. The American G.D.P. was about $20.5 trillion in 2018.

The business community, along with both Democrats and Republicans in Congress, have been critical of Mr. Trump’s tariffs but they have been surprisingly willing to carry the costs of Mr. Trump’s trade war if it brings about needed change. Executives across industries say they support efforts by Mr. Trump to reset an economic relationship that has too often disadvantaged United States companies and workers.

“There’s no cheap way to pursue these kinds of policy objectives,” said Daniel Rosen, a founding partner of the Rhodium Group, a research firm with extensive experience in China, and one of the authors of the report.

Businesses have long complained of unfair treatment in the Chinese market, including pressure to hand over valuable technology and discrimination against foreign companies operating there. The Trump administration has calculated that China’s hacking intrusions and coerced acquisitions of technology cost American companies at least $50 billion a year alone.

But it remains unclear whether Mr. Trump’s final deal will achieve the kind of change that would make the fight worth the cost. American negotiators have been pushing China for more substantive economic changes than it seems willing to accept, including rolling back subsidies to Chinese companies and lowering barriers to foreign competition.

China is in the midst of introducing a sweeping rewrite to its laws on foreign investment, as its National People’s Congress meets in Beijing. While the reforms are a nod to Mr. Trump’s concerns, some China experts criticized the language as overly broad and say it represents only a step toward the kind of more transformative changes that are needed.

The president has insisted he could “walk” if America does not get what it wants from China. But he also wants to avoid further roiling a jittery stock market, which has fallen on news of a prolonged trade war, and to limit economic damage ahead of the 2020 election.

That is prompting concern among Republican lawmakers and American businesses that Mr. Trump could ultimately accept a weak deal that includes high-profile purchases of American products like liquid natural gas and soybeans but only vague and ultimately unenforceable commitments in more important areas of structural reform.

On Thursday, Mr. Trump lauded the Chinese as “very responsible and very reasonable,” and said there would be news on China “one way or the other” over the next three to four weeks.

“We could snatch defeat from the jaws of victory fairly easily here,” said Stephen K. Bannon, President Trump’s former chief strategist. He said that the president had succeeded in amping up leverage on China, but that the administration risked squandering that leverage for a deal that focused primarily on product purchases.

“Nobody thought Trump would be able to pull it off — he has,” Mr. Bannon added. “Now you might throw it away.”

The administration had been pushing toward a signing summit meeting with Mr. Trump and President Xi Jinping to resolve the trade conflict at the end of March. But outstanding differences over how the two sides would roll back their tariffs and enforce their agreement have prolonged the talks.

In a meeting last week, the president huddled with Vice President Mike Pence, Trade Representative Robert Lighthizer and other trade advisers to discuss whether China is serious about offering concessions or if it was merely paying lip service to Mr. Trump, according to a person with knowledge of the situation.

Steven Mnuchin, the Treasury secretary, said Thursday that the administration was “pleased with the progress” of the talks and that “a lot of documents” were moving back and forth but acknowledged that a signing ceremony this month was out of the question.

“We still have more work to do,” Mr. Mnuchin said. “It’s more important we get the right agreement and not rush it, but we’re working diligently to try to do this as quickly as possible.”

The Chinese are now pushing for Mr. Xi’s trip to take the form of a state visit to Washington, though plans are still in flux, people with knowledge of the discussions said.

Susan Shirk, chairwoman of the 21st Century China Center at the School of Global Policy and Strategy at the University of California, San Diego, said it would take negotiators time to test which of the objectives the Chinese were able to give ground on, and which they were not.

“If my supposition that this is actually a more professional negotiation, a more serious one, is correct, then it’s not surprising it would need more time,” Ms. Shirk said. “It doesn’t mean things are bad.”

Mr. Trump’s summit meeting in February with the North Korean leader Kim Jong-un, which ended abruptly when Mr. Trump felt the other side was not producing enough concessions, may be another reason the United States-China event has been pushed back. The Chinese are wary of sending their president halfway around the world only to return empty-handed. They have been trying to iron out the details beforehand.

“We don’t need another U.S.-North Korea summit, where so much was left unresolved, and in which both sides were hoping through the force of personality to persuade the other side to their viewpoint,” said Gary Locke, an American ambassador to China during the Obama administration. “You need all the minutiae negotiated ahead of time.”

A final deal could also be stymied by America’s insistence that it be allowed to use tariffs against China if Beijing does not uphold its end of the agreement. China is pushing for the United States to lift all the tariffs the administration has already imposed and there is concern among Chinese officials about agreeing to a deal that does not remove all the tariffs or that allows the United States to impose additional levies in the future.

Mr. Trump has previously suggested the United States could keep some tariffs in place, even if a deal is reached.

“Without the tariffs, we wouldn’t be talking,” Mr. Trump said in an interview with The New York Times in January.

In testimony before Congress last week, Mr. Lighthizer declined to specify whether the administration would lift all of its tariffs when a deal is struck, or hold some of the levies in place and roll them back only once China accomplishes certain reforms. People familiar with Mr. Lighthizer’s thinking say he prefers the latter approach, but he could yet be overruled if the White House is eager to secure a deal.

In China, the tone has turned more positive, potentially presaging a conclusion to the talks. Xinhua, China’s state news agency, reported that Mr. Mnuchin and Mr. Lighthizer spoke with Vice Premier Liu He by phone on Thursday and made “further substantial progress” on the text of the deal.



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