Trump Trade Officials Will Present a Hard Line in China, but Internally They Are Divided
Posted May 2, 2018 5:06 p.m. EDT
WASHINGTON — Top Trump administration officials are arriving in China this week armed with tough talk about Beijing’s need to change its trade practices. But within the U.S. delegation there is little consensus about what concessions America should try to extract — or the best approach to getting the Chinese to agree.
Instead of a single point person with a clear set of demands, the White House sent six top trade and economic officials with varying ideas on how to approach China and who are deeply divided over the desirability of a trade war. Some advocate goals that do not align with what the U.S. business community wants or what China is prepared to offer, raising questions about how productive a dialogue with the Chinese will be and whether talks can prevent the world’s two largest economies from tipping into a deeper conflict.
What unites the disparate group is a singular view that China’s trade practices are unacceptable and that Washington will now call the shots.
“The discussions will take place in Beijing; the decisions will take place in Washington,” Peter Navarro, a top trade adviser and longtime China critic who is among those traveling to Beijing, said Tuesday.
China experts have said the trip is likely to be more of a listening session, where administration officials will wait to hear what the Chinese offer. But without agreement or a clear list of goals from the U.S. side, the Chinese may try to mollify officials by meeting only the most modest of their trade demands. That could include agreeing to buy additional U.S. products to lower the trade surplus with the United States, reviving old economic dialogues between the countries, or cracking open some domestic markets to foreign competition — but only those where Chinese companies are already securely dominant.
In general, China appears set to take a hard line. Chinese officials said they would not agree to a $100 billion reduction in the trade deficit that the Trump administration has demanded. And they do not plan to engage on ambitious U.S. demands to curb an industrial plan known as Made in China 2025.
The delegation includes officials like Navarro and Robert Lighthizer, the U.S. trade representative, both of whom embrace a more combative approach to dealing with China than other advisers on the trip. Navarro and Lighthizer have been focused on China’s unfair trade practices for decades and insist the country must make more dramatic changes to even the playing field for U.S. companies. They also appear willing to follow through with the tariffs President Donald Trump has threatened, despite the pain it would inflict on many U.S. businesses and workers, if they view it as necessary to increase their leverage with the Chinese.
Other members of the delegation, including Treasury Secretary Steven Mnuchin and Larry Kudlow, who heads the National Economic Council, appear more inclined to strike deals with the Chinese that would accomplish the president’s goal of reducing the gap between what America imports from China and what it sells to the country and head off the risk of an escalating trade war. Also on the trip are Wilbur Ross, the commerce secretary who has previously seemed receptive to striking deals, Everett Eissenstat, an experienced trade adviser, and Terry Branstad, the U.S. ambassador to China.
Yukon Huang, a China scholar at the Carnegie Institute, said the group is what he would call an “ideologically hybrid team” with competing views about what is really plaguing the U.S.-China relationship.
“It’s a mixture between two camps, one focused on trade issues, one focused on technology wars,” Huang said. “The reason it is such, and we don’t have a game plan, is the issues aren’t well understood.” Among the concerns are a range of practices, including barriers to entry, subsidies and regulations that pressure U.S. companies to hand over sensitive trade secrets, which China uses to make national champions of its homegrown firms. These tactics have enabled the Chinese to dominate global industries like steel, aluminum and solar panels in the past, and U.S. trade advisers say they are tipping the playing field for industries of the future, including semiconductors, robotics, cloud computing, electric vehicles and biotechnology.
Speaking at the U.S. Chamber of Commerce in Washington on Tuesday, Lighthizer said that the United States has nearly a third of the world’s high technology business, followed by China, and that China’s trade practices were imperiling the economic future of the United States.
“I’m always hoping but not always hopeful,” Lighthizer said about the prospect of success from the upcoming talks.
Many American industry leaders support Lighthizer’s efforts to expand access to Chinese sectors that are restricted to U.S. companies and protect American intellectual property from theft and coercion — long-standing complaints of American business leaders about China’s tactics.
But they are wary of the administration’s approach to resolving long-standing problems. Some business leaders fear that the Trump administration may simply accept Chinese offers to lower the trade surplus by purchasing more U.S. goods and open up segments of the economy that are already mature, like financial services, electronic payments or the auto sector. On the other hand, they worry about the economic damage from a trade war if the anti-China wing of the delegation wins the internal debate and follows through with its threats.
Thomas J. Donohue, president of the U.S. Chamber of Commerce, said Tuesday that there were “serious, growing and legitimate challenges” about Chinese practices, but he also cautioned against the effect of a tit-for-tat tariff war.
“We are deeply concerned that the proposed tariffs list and escalating tariff threats from the administration will not effectively advance our shared goal of changing these harmful Chinese practices,” he said.
Analysts continue to warn of potential risks to economic growth in the United States if administration officials cannot negotiate a quick resolution with the Chinese and the tariffs go into effect. Goldman Sachs analysts said in a research note this week that new investment restrictions on China that the administration plans to soon outline could also rattle investors.
“Some additional market-disruptive policy moves regarding U.S.-China trade seem likely,” Goldman’s Alec Phillips wrote in the research note, which played down the odds of success in this week’s talks: “We believe a substantial breakthrough at this meeting is unlikely as the issues the U.S. has raised — intellectual property policies, technology transfer, and the ‘Made in China 2025’ strategy, in particular — are not the type of technical trade issues that can be resolved quickly.”
The National Association of Manufacturers, one of the most influential business lobbying groups in Washington, has been pressing Trump and his economic team to open negotiations with the Chinese on a free-trade agreement, an ambitious move that many trade experts doubt would bear fruit, given the struggles of U.S. negotiators to secure far more limited agreements with China in the past.
The manufacturers’ president, Jay Timmons, urged Trump in a letter this year to “consider pursuing a truly modern, innovative and comprehensive bilateral trade agreement with China that wholly restructures our economic relationship.” The group’s vice president for international economic affairs, Linda Menghetti Dempsey, told a congressional subcommittee in April that such an effort would be “at once both a radical idea and, in our estimation, the most pragmatic and effective way forward” on trade with China.
The Obama administration attempted to negotiate a more limited agreement with China, a bilateral investment treaty, but could not finalize the deal before Trump took office. His team has not yet revived the talks.
Manufacturers have discussed the plan directly with Kudlow and with Vice President Mike Pence. Proponents say they believe the idea could appeal to Trump’s preference for bilateral trade agreements and his confidence in his negotiation skills.
However, White House officials have given no public indication that they are considering such a negotiation. Lighthizer, Navarro and other proponents of a harder line against China have argued that the Chinese tend to use such dialogues as a delaying tactic and that trade negotiations with the Chinese have not been productive in the past.