Messaging is everything in international diplomacy, especially around high-level negotiations. After the latest round of U.S.-China trade talks in Beijing, all signs pointed to a successful outcome. An extra day was added beyond the planned two days of talks. Vice Premier Liu He made a short appearance at the lower-lower-level gathering of deputies. The U.S. Deputy Agriculture Secretary had glowing words after the meeting (though curiously no one from USTR spoke during the coveted press briefing.) Trump even tweeted shortly afterwards that the talks had gone very well.
And then the messaging changed, at least from USTR.
Lighthizer said last week, according to Sen. Grassley who had met with him Friday, that he hadn’t seen the structural changes he was looking for from China. That’s a major sticking point for the White House and something Trump has repeatedly said must be addressed to avoid raising tariffs from 10% to 25% on Chinese goods.
It is an odd complaint since China would likely only agree to the far more difficult issues face-to-face at Cabinet-level negotiations with either USTR Lighthizer or President Trump. The Beijing meeting was a the Deputy level, a.k.a. not the decision makers.
Lighthizer also announced that if talks don’t work out, U.S. companies could apply for exclusions to the 25% tariffs on $200 billion of imports from China that are set to take affect in March.
That’s a weak nod to the U.S. business community who were directly affected by the 10% tariffs and are likely lobbying hard for a resolution to the trade impasse. The promise of exclusions provide cold comfort since the aim of the next round of tariffs is to put even more pressure on China. Any exclusions would weaken that influence. Approvals would likely be slow-rolled by the administration.
USTR now appears to be trying to get out in front and push their hardline agenda ahead of the Jan. 30-31 talks. Sen. Grassley commented in a briefing to the press that since China’s economy is ailing there’s a chance to get more progress on these harder issues, which include IP protection, forced tech transfer, and stealing trade secrets.
These issues aren’t going away. The Department of Justice is now looking into whether Huawei stole robotic technology from T-Mobile.
To further complicate the administration’s signaling, Treasury Secretary Mnuchin has been discussing lifting tariffs as an incentive for China to make an equally bold move, though it’s unclear what that could be considering the depth of structural changes needed to satisfy U.S. concerns.
Since China isn’t going to agree to the U.S. list of over one hundred issues raised, and Trump isn’t going to accept some token purchases of U.S. goods and nothing else, some kind of compromise is necessary. What Grassley and other White House hardliners may not fully accept is that Trump’s approval ratings are plummeting, major U.S. companies are feeling the effects of the tariffs, and Trump himself may be itching for a settlement.
While compromise isn’t really in Trump’s winner-take-all approach and his impulsiveness can lead to unexpected outcomes (e.g. the Wall shutdown), time is on no one’s side here. The U.S. and China have been locked in a mutually reinforcing death spiral of tariff-raising for the past year.
While USTR should certainly push for everything they can get, the most likely outcome, if cooler heads prevail, is some sort of short-term relief, continued tariffs on some Chinese goods, and a plan to tackle the harder issues over time.
While both sides might not get exactly what they what, it’s certainly better than the global economic carnage of a prolonged trade war where everyone loses. Trump really looks like he could use a win right now.