China Pledges $200 Billion in U.S. Purchases by Overhauling Trade Rules

WASHINGTON — U.S. and Chinese officials made progress Friday toward an agreement that could help avert a trade war, with China pledging to increase its purchase of American goods by at least $200 billion by 2020, largely by lifting existing barriers that would make it easier for U.S. firms to sell and operate in China, according to a senior Trump administration official.

To help narrow the trade deficit the United States runs with China, the Chinese would reduce tariffs and other nontariff barriers that hinder the flow of American goods and services into China. Removing tariffs and other structural barriers would essentially allow another $200 billion worth of goods to enter China through 2020, the official said.

Administration officials described the potential deal as a victory that would result in China making some of the structural changes to its economy that the United States has long sought. Right now, China imposes tariffs on a range of U.S. products, including autos, agricultural goods and energy, and has other stiff barriers to entering its market, such as requiring American companies to enter into joint ventures with Chinese firms to gain entry and additional hurdles to shipping goods into the country.

But hard-liners within the Trump administration have cautioned that China has a long history of making promises to overhaul its trade practices and open its market to U.S. goods, only to walk back or delay those moves. Those advisers have pushed President Donald Trump to take a tougher stance that would ensure China follows through on changing practices that U.S. businesses have long complained about, including rampant intellectual property violations and discrimination against foreign companies.

The official did not specify which barriers would be lifted but said the structural changes would enable U.S. companies to sell a wider array of goods and services in China.

The deal, which is still being negotiated, would also include provisions to address concerns about U.S. companies being forced to hand over intellectual property if they want to operate in China. And it would include measures to help American companies avoid some of the onerous partnerships they are currently forced to strike with Chinese companies to do business in the world’s largest consumer market.

Liu He, a vice premier and top economic adviser to the Chinese president, met Thursday with Trump and his top trade officials, and meetings continued into Friday afternoon. Larry Kudlow, the head of the National Economic Council, said in an interview on Fox Business Network that Liu had given “an excellent presentation” to a small group of trade advisers in the Oval Office on Thursday, in which he outlined multiple remedies for the trade deficit issue, tariff and nontariff barriers and technology theft problems. “President Trump was very engaged,” Kudlow added.

Sarah Huckabee Sanders, the White House spokeswoman, said Friday that the United States and China are “continuing to have productive conversations.”

Though Chinese leaders have presented a strong front to the Trump administration, they are eager to dissuade the United States from imposing multiple trade penalties, including tariffs on $150 billion of Chinese goods exported to America, pending restrictions on Chinese investments in the United States, and sanctions that are crippling the business of one of its largest telecom firms, ZTE.

The measures against ZTE threaten to put tens of thousands of Chinese out of work, and they have provoked a backlash within the country, with some Chinese bemoaning that their country is not technologically strong enough to survive without the United States, a potential embarrassment for President Xi Jinping of China.

China also appears eager to act quickly to take advantage of a period of enhanced leverage, as the White House prepares for a historic meeting with North Korea’s leader, Kim Jong Un, next month in Singapore that would burnish Trump’s reputation as a deal-maker.

Speaking from the Cabinet Room on Thursday, Trump drew a link between China’s recent meetings with North Korean leaders and Kim’s threat to cancel the summit. “It could very well be that he’s influencing Kim Jong Un,” Trump said, referring to Xi.

As Liu met with U.S. officials, China appeared eager to pave the way for a rapid resolution of trade tensions between the economies. On Friday, the Chinese Commerce Ministry announced that the country was dropping its anti-dumping and anti-subsidy investigation into American sorghum. The investigation had effectively shuttered imports of sorghum, which is used to feed pigs and make China’s signature rice liquor, baijiu, and was widely viewed as a direct response to U.S. tariffs on solar panels and washing machines.

“The Chinese want this to go away, and the Chinese are willing to write a check to make it go away,” said Leland Miller, the chief executive officer of China Beige Book International. “They just want a deal where they can say we came to the table, we answered your problems, we’re not doing it again. This is the major danger with a short-term deal, it extinguishes almost all leverage the U.S. has.”

During a visit to Beijing in early May, the Trump administration presented the Chinese with a long list of demands to overhaul their economy that went far beyond just reducing the trade deficit they run with the United States. The list also included reducing the subsidies China provides to its own industries and several restrictions that encourage foreign businesses to transfer technology to Chinese companies or the government.

Trump has threatened China with an array of penalties, including tariffs and restrictions in investments in the United States. The administration has cited national security concerns as a reason to limit the inflow of investment from China and the Treasury Department is supposed to outline potential restrictions to the White House by May 21. However, it is unclear whether the administration would take those off the table in exchange for an agreement with China that alleviates some of its broader concerns.

Many economists question the ability of the United States to actually sell China an additional $200 billion in goods, given the economy is already at full production, and the total would be more than half the United States’ trade deficit with China last year.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, said that under World Trade Organization rules, China must lower its tariffs not just for the United States, but for all trading partners. But that could lead to a situation where more Japanese, South Korea or European goods are flooding into China, rather than American ones. Scott Kennedy, the deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies, said the U.S. effort to ramp up pressure on China through tariffs, investment restrictions and other measures has substantially raised tensions with China and other American allies, as well as provoked conflict within the administration, interest groups and various branches of government.

"If we get a deal which is essentially about expanding exports, we’ll really want to ask ourselves whether going through all this was worth it,” he said.