U.S. Suspends Tariffs Against China, Stoking Fears of Loss of Leverage

Posted May 20, 2018 8:34 p.m. EDT
Updated May 20, 2018 8:41 p.m. EDT

WASHINGTON — The Trump administration has suspended its plan to impose sweeping tariffs on China as it presses forward with trade talks, a gesture that will temporarily ease tensions between the two nations but rapidly increase pressure on President Donald Trump to secure the type of tough deal that he has long said is necessary to protect U.S. workers.

Steven Mnuchin, the Treasury secretary, said Sunday that the two countries had made progress as they concluded three days of intense trade negotiations in Washington late last week. The planned tariffs on as much as $150 billion worth of Chinese goods are off the table while the talks proceed, he said.

“We’re putting the trade war on hold,” Mnuchin said on “Fox News Sunday.”

The reprieve came as many crucial details remained undecided, and trade experts warned that the suspension of tariffs could undercut Trump’s leverage and thrust the United States back into the kind of lengthy — and ultimately fruitless — negotiations with China that have bogged down previous administrations.

There are also large and lingering questions about what the United States planned to do with one of its most powerful bargaining chips: the Chinese telecom firm ZTE, which has been crippled by sanctions that prevent it from buying U.S. components. Trump last week suggested on Twitter that he might rethink the company’s punishment in return for trade concessions.

Warnings from Trump’s national security team and lawmakers about easing up on ZTE — which has been accused of failing to punish employees who violated trade controls against Iran and North Korea — prompted U.S. officials to take a tougher stance on the company in talks. That, in turn, provoked a less cooperative stance from the Chinese negotiators, who had arrived from Beijing believing that the Trump administration might be prepared to relent. The standoff over ZTE was a significant reason more progress was not made during the talks in Washington, according to three people familiar with the discussions.

On Sunday, Mnuchin said that the United States was not willing to revisit its penalties on ZTE, which gets a large amount of its semiconductors from Qualcomm, the San Diego-based chipmaker. He said that there had been no “quid pro quo” linking a trade deal to ZTE’s fate, although President Xi Jinping of China had asked Trump to consider offering relief to the company.

Mnuchin insisted that the Trump administration was not “going easy” on China over ZTE or the trade talks. Trump wanted to be “very tough” on ZTE, and that the tariffs could be put back in place if the trade negotiations collapsed, said Mnuchin, whose department is also required to send recommendations for restrictions on Chinese investment to the White House this week.

“He could always decide to put the tariffs back on if China doesn’t go through with their commitments,” Mnuchin said.

Larry Kudlow, Trump’s top economic adviser, said on ABC’s “This Week” on Sunday that a path to ZTE’s revival exists, but that it would be arduous.

“If any of the remedies are altered, they are still going to be very, very tough, including big fines, compliance measures, new management, new boards,” Kudlow said. “The question is whether there are perhaps some small changes around the edges. I think President Trump is doing this because there’s some very good feeling between him and China.”

“Do not, please, do not expect ZTE to get off scot-free,” he added. “It ain’t going to happen.”

On Saturday, both countries released a joint statement that offered little detail about what had been agreed to, other than holding another round of discussions in China. Mnuchin said Sunday that the countries had agreed on a “framework” under which China would increase its purchases of U.S. goods, while putting in place “structural” changes to protect U.S. technology and make it easier for U.S. companies to compete in China.

And while Trump administration officials said last week that China was prepared to increase its purchases of U.S. products by $200 billion by 2020, Chinese officials had pushed back on that claim, and the joint statement the two sides released lacked any such dollar figure.

On Sunday, Mnuchin declined to confirm that figure. “We have very specific targets; I’m not going to disclose what they are,” Mnuchin said. “They go industry by industry.”

He suggested that, under a deal, China would increase its purchases of U.S. agricultural products by 35 percent to 45 percent this year and ramp up energy purchases over the next three to five years.

Kudlow said Sunday that the $200 billion number was a “rough ballpark estimate” that both sides had used.

“They are offering to make structural reforms, such as lower tariffs and lowering nontariff barriers, which will permit us to export billions and billions more goods to China,” Kudlow said. “That’s the elementary point. That’s the key point.”

Kudlow had told reporters outside of the White House on Friday that the Chinese had offered at least $200 billion in new purchases of U.S. goods. On Sunday, he walked that back.

“Maybe I got ahead of the curve but the number 200 billion deficit reduction, which is something the president likes, has been around by all the people on both sides,” he said. “But it’s too soon to lock that in.” The lack of specific commitments from the Chinese also disappointed some previous supporters of Trump’s aggressive moves on China, who saw that as a worrying sign for the administration’s ability to secure meaningful reforms.

“It certainly looks like President Trump is failing us on China,” said Daniel DiMicco, chair of the trade lobbying group Coalition for a Prosperous America and a former trade adviser to Trump during his campaign. “He is letting down all those who voted for him and rewarding those who didn’t. It appears the swamp got him.”

Some supporters of the administration’s tough stance on China now fear that the White House is pursuing a quicker deal that would reduce the trade deficit — a longtime goal of Trump’s — as well as forestall a trade war, but sacrifice more ambitious goals the administration had discussed for reforming the Chinese economy.

Derek Scissors, resident scholar at the conservative American Enterprise Institute, said the United States’ response to China’s “predatory behavior” has been put on hold “in exchange for things yet to occur, and Mnuchin won’t tell us what they are.”

Brad Setser, a senior fellow for international economics at the Council on Foreign Relations, added that “the most concrete commitment that seems to have emerged out of the U.S.-China trade talks was a commitment on China’s part to buy more of the things that it likely would buy more of no matter what: agricultural products and energy.”

In a statement Sunday, Robert Lighthizer, the U.S. trade representative who led an investigation last year into China’s infringement of U.S. intellectual property, said that the United States had agreed on a framework to address the serious issues his investigation had identified.

“Getting China to open its market to more U.S. exports is significant, but the far more important issues revolve around forced technology transfers, cyber theft and the protection of our innovation,” he said. He added that the United States would use “all of its legal tools to protect our technology.” Some Democrats, who have supported the president’s plan to overhaul trade relations with China, expressed concern that Trump might be softening his aggressive stance in hopes of scoring a quick win on trade.

“If President Xi is going to escape meaningful punishment for ZTE and fail to take strong actions on intellectual property, cyber theft, and American companies having free access to sell goods in China, and instead simply provide a promise to buy goods for the next few years, we will have lost,” Sen. Chuck Schumer, D-N.Y., the minority leader, said Sunday.