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Trump and Xi Are Struggling to Find Path Forward in Trade Talks

11:15AM Jul 19, 2019
Trump & Xi

“I’ve said repeatedly this is not a 10-minute process,” Commerce Secretary Wilbur Ross told Fox Business on Wednesday. “This is a long, involved process.”( Farm Journal )

Slow progress and disagreement on key initial demands from Presidents Donald Trump and Xi Jinping is raising doubts about whether the U.S. and China will actually return to the negotiating table to overcome their much deeper differences.

Trump complained again this week that China wasn’t buying the large volumes of U.S. agricultural goods that he claims Xi promised to purchase. Meanwhile, there’s been no change in how the U.S. treats telecommunications giant Huawei Technologies Co., a key demand of China.

With the conflict dragging on, reaching a comprehensive trade deal as Trump gears up for re-election next year increasingly seems like a remote possibility, according to people familiar with the matter, who spoke on the condition of anonymity.

“I’ve said repeatedly this is not a 10-minute process,” Commerce Secretary Wilbur Ross told Fox Business on Wednesday. “This is a long, involved process.”

Trump’s trade team is now debating whether it would serve his re-election bid well to reach a trade deal with Beijing, which he then has to sell domestically in an environment that’s increasingly hostile toward China.

“As some in the U.S. administration are looking to 2020 as their guide for how and whether to proceed with an agreement with China, the Chinese leadership will be very cautious -- fearing that any agreement reached may not last beyond the Twitter news cycle,” said James Green, who until recently was the senior official from the U.S. Trade Representative in Beijing and is now a senior adviser at McLarty Associates. “So it’s a political decision in China as well.”

In addition to differing interpretations of what the two sides agreed to at the Group of 20 summit in late June, the countries have to decide whether to resume talks based on the draft agreement that collapsed in May, or to start again.

Trump boasted at a press conference after his meeting with Xi that the Chinese had agreed to buy “tremendous” amounts of agricultural goods. But a member of the Chinese delegation told the U.S. team after the leaders’ meeting that Beijing won’t make concessions on agriculture regardless of what Trump announced publicly, a person familiar with the exchange said.

According to that person, Beijing wants to see the Trump administration issue special licenses for U.S. suppliers to resume shipments to Huawei before buying more crops.

Conflicting Views

People familiar with Chinese side of the talks say that China is holding out for further progress. Since the May breakdown, Chinese officials have repeatedly insisted that any deal must meet their three conditions: removing all tariffs, realistic purchase targets, and a proper balance and equality for the two sides. Beijing has also been pushing for the removal of Huawei from a U.S. blacklist.

Treasury Secretary Steven Mnuchin earlier this month made calls to multiple American chief executives urging them to seek the exemptions for sales to Huawei, according to two people briefed on his calls. Mnuchin told the executives their applications needed to be filed so that the Commerce Department could approve them.

The Wall Street Journal first reported on Mnuchin’s outreach, and the Treasury Department issued a strong denial of the account.

China Trade Is Balanced — But the World Still Isn’t, Says IMF

Beyond agriculture and Huawei, the sides remain at odds over significant issues such as Washington’s demands for structural reforms to China’s economy and Beijing’s call for the U.S. to remove all existing punitive tariffs on imports from China.

Trump this week reiterated that he could impose additional tariffs on Chinese imports if he wants, a threat Beijing said would only prolong the trade war.

How the U.S.-China Trade War Got to This Point: QuickTake

U.S. Trade Representative Robert Lighthizer and Mnuchin are due to talk over the phone with their Chinese counterparts Thursday, and they may travel to Beijing for in-person negotiations. Still, it’s not clear if Beijing will agree to resume talks based on an earlier draft of the agreement that China’s leadership has since rejected.

Ross said “the fundamental question” was if China agrees to go back to the May deal before Beijing backtracked on some of its commitments.

Trump administration officials feel emboldened by recent weak economic numbers coming out of China and have consistently claimed their tariffs are hurting China but haven’t had any impact on American consumers. Data from China this week showed the economy slowed to the weakest pace in at least 27 years. Even so the economy still expanded 6.2% from a year ago, with retail sales and industrial output also rebounding in June.

Stephen Vaughn, Lighthizer’s former general counsel who recently left the administration and is now a partner at King & Spalding, said the strength of the U.S. economy gives the president some leverage over Beijing in the talks.

“Under these circumstances, the president will likely continue pressing for significant structural change as part of any new deal with China,” he said.

— With assistance by Miao Han

(Updates with comment from Ross in fourth paragraph.)