White House Eagerness for a Deal Gives North Korea the Upper Hand


IN A MINUTE | Trump Loses Edge with North Korea

Agreeing to meet without deal gives Kim the advantage


Trump claimed in last weeks’s State of the Union address that if it weren’t for him, the U.S. would be at war right now with North Korea. His self-praise for merely engaging the North telegraphed an eagerness for a deal that will be hard to justify should talks not deliver full and irreversible North Korean denuclearization.

Many now argue that North Korea will never give up their weapons and the U.S. should just accept that and move on, but the stakes are high for U.S. allies South Korea and Japan, the most susceptible to a North Korean provocation. If North Korea keeps its nuclear capability, Japan, a U.S. treaty ally, will certainly move to counter that threat, triggering a regional arms race.

There’s been precious little indication that Kim is willing to give up anything for another meeting with the U.S. President, a completely predictable outcome when Trump showed so much eagerness to meet in Singapore without a major breakthrough in talks.

A presidential meeting should only come after an agreement has been reached, not the other way around.

During the lapse in diplomacy since last summer’s Singapore summit, North Korea has been expanding its weapons program, not decreasing it. Recent reports and commercial satellite imagery show that the DPRK not only continued to build missiles, but there have far more weapon sites than previously disclosed. 

While North Korea has not overtly tested a missile or engine system since talks began, even the most novice global affairs observer knows delays are not concessions. Kim can fire up a test whenever and wherever he wants. Blowing up wooden sheds and exploding a mountain entrance were, at best, window dressing.

Trump has been far more adept in his trade negotiations with China and refused to meet with Xi Jinping until more details are ironed out. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are headed to China soon.

By refusing to say he’ll meet with Xi until he finds out what happens in the latest round of negotiations he maintains his advantage. A presidential meeting should only come after an agreement has been reached, not the other way around.

Which begs the question, why did Trump commit to meeting Kim before his Special Envoy, Stephen Biegun, finished negotiating any of the numerous and contentious details? After Biegun returned from Pyongyang Trump officially announced his Feb. 27-28 visit to Hanoi, but preparations were already underway for that visit. One can only surmise that Kim understood he had the advantage.

Up for grabs are a litany of economic, political, and military gives including the minimal lifting of some U.S. sanctions, a declaration to formally end the Korea conflict, establishing an interest section or Embassy in Pyongyang, and at the extreme, a reduction in U.S. troops and/or weapons systems on the peninsula.

Additionally Trump has already said he wants a Nobel Peace Prize for his efforts, but his vanity should not drive what may amount to a bad deal.

For any of these U.S. concessions, Trump must insist on full, verifiable denuclearization. Otherwise the bait-and-switch game will just go on while North Korea continues to build its arsenal. Transparency has always been the problem, and so far Kim has shown no more propensity to open his reclusive nation than his father or grandfather before him.

That may change if Kim is more interested in massive personal wealth and global recognition that followed Chinese and Vietnamese reform and opening. If so, Trump must press hard on eliminating the North’s ability to make and weaponize fissile material.

The worst thing that could happen in a real estate deal gone bad is bankruptcy. But an impulsive approach to high-stakes diplomacy with North Korea could mean risking regional and U.S. national security.


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Conflicting Signals: USTR Ups Pressure on China and Treasury Talks Lifting Tariffs

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.

Compromise isn’t really in Trump’s winner-take-all approach and his impulsiveness can lead to unexpected outcomes (e.g. the Wall shutdown). The U.S. and China have been locked in a mutually reinforcing death spiral of tariff-raising for the past year and time is on no one’s side here.

USTR should certainly push for everything they can get. If cooler heads prevail, some sort of short-term relief with continued tariffs on some Chinese goods, and a plan to tackle the harder issues over time is the most likely outcome.

Both sides might not get exactly what they what, but it’s certainly better than the global economic carnage of a prolonged trade war and Trump really looks like he could use a win right now.


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Trump Has Few Options on Huawei Sanctions Trouble

Time is running out on the U.S. extradition request for Huawei’s CFO, Meng Wanzhong who was arrested in Canada in December. This follows an investigation on sanctions-busting by the firm related to business ties with Iran. Trump said that he might intervene in the case if it helped with the China trade impasse and for national security reasons.  As much as he’d like to use the Huawei case for political purposes he actually has few options. 

Intervening creates a dangerous linkage between national security issues and trade politics. China routinely engages in this type of politicization, and is part and parcel of their attempts to influence other countries over a variety of perceived slights. In 2017 South Korea’s Lotte department store chain shut its China operations after a concerted government effort to thwart their business (stores were suddenly hit with fire hazard violations,) when the firm gave up land to the South Korean government for a U.S. THAAD missile defense system installation. In 2011 the Chinese gov’t banned Norwegian salmon after the Nobel Prize was awarded to Liu Xiabo, a Chinese dissident who later died while in custody.

State Department Issues China Travel Warning for Americans

The U.S. is not China, and a Trump intervention would signal that the rule of law is no longer the rule of the land. The political backlash from left, right, and what remains of the center would be swift and significant.

Political intervention would make Trump look weak on China, again. Trump already gave Xi Jinping a huge gift when he lifted a ban on ZTE after its own Iran sanctions trouble. The company would have gone out of business without that commercial “pardon” to continue purchasing U.S. technology. Xi Jinping did not return the favor and blocked Qualcomm’s $44 billion purchase of NXP. China was the only country standing in the way. 

Canda Warns U.S. Not to Politicize Extradition Case (Reuters)

That’s not to say Trump won’t try, but a criminal case is harder to interfere with than the ZTE sanctions case. Politically, Democrats have the majority in the House and will hit from the left. Hardline Republicans, who want a more forceful policy on China, will strike from the right. And any meddling in the Department of Justice while Mueller’s investigations remain open would be a huge red flag for those considering impeachment hearings.

The only option is to let the legal system run its course. While this may inflame tensions with China in the short term, it reduces the chances of a U.S. political backlash.

Don’t be surprised though if Trump surprises us all and defies the collective wisdom with an impulsive response if Canada agrees with the extradition request. While he has the power to free Huawei’s CFO, promising more than he can deliver ahead of time may prove that a Trump promise made, is a promise easily broken. That would significantly weaken his trade negotiating position vis-a-vis China.


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U.S.-China Trade Deal Already in Doubt

 

Trump Chaos Rattles China Trade Negotiations Before They Even Begin

Just days after President Trump claimed success in trade disputes with China, disagreement over the details have emerged. That rings with a familiar tune.

The Trump-Kim Summit this past June in Singapore raised similar doubts about what, if anything, was actually accomplished. It turns out that even with a loosely worded document we now know that nothing was formalized after that highly touted success.

While North Korea continues to develop missiles and possibly more nuclear weapons, Trump complains he hasn’t been offered the Nobel Peace Prize for his efforts. 

The Saturday Trump-Xi dinner in Buenos Aires didn’t even offer anything in writing and journalists were left guessing why applause erupted from behind closed doors as the dinner ended. There was no press conference or photo op to clear up the issue as Trump & Co. headed for the airport.

After landing, Trump claimed Chinese auto tariffs were being lifted. The White House has now walked that back. Trump claimed China would spend over $1 trillion on U.S. goods. His economic advisor Larry Kudlow said that was more aspirational than specific and would be determined by private entities and economic conditions. Trump said if China doesn’t make bold moves in ninety days, he’s Mr. Tariff, and then suggested the timeline might be extended.

No one knows what success looks like three months from now, and that’s a serious problem.

Now China has expressed its discontent with the White House version of winning it all. Yet again, Trump excels at undiplomatic posturing while others are left to clean up his mess.

The pattern here is clear. Trump’s erratic words cannot be trusted, only managed, even by those closest to him. It’s another episode of “Promises Made, Promises Broken.”

U.S. markets didn’t like that kind of uncertainty, and along with other negative financial news on Tuesday, they shed over 3% in one of the worst days in their history. 

Making matters worse, US Trade Representative Lighthizer replaced Treasury Secretary Mnuchin as lead negotiator. Lighthizer is a known China hawk, and while having someone strong-willed and skeptical at the table is an advantage, if the lead isn’t considered to be negotiating in good faith that will not end well for bilateral relations or the international trading system.

The biggest risk at the end of February will be China claiming they did everything they said they would do and the U.S. saying whatever they did wasn’t enough.

Chinese state media has already started making the list and announced increased punishments for firms found guilty of IP theft, but will they be implemented?   

If Trump really wants to reduce the trade deficit, protect intellectual property, and remove investment barriers, he and his team are going to have to be far more disciplined than they have been to date, and that seems highly unlikely.

Playing loose and fast with the facts, tweeting exaggerated wins, and painting Chinese negotiators into a corner will not make this relationship work. Both sides have to be able win.

 

U.S.-China Trade War – Attack on Consumers

The next tranche of U.S. tariffs on $200 billion worth of Chinese goods are about to hit. Rather than being largely invisible to the public like the first $50 billion, round two includes seafood, bicycles, suitcases, bags, carpets, air conditioners, and sports gear (an exhaustive list of over 190 pages can be found as a USTR .pdf file here.)

(DoD Photo By Glenn Fawcett – Wikimedia Commons)

Other imports subject to tariffs this time around include auto glass, tires, engines, iron, steel, flooring, and construction tools. A visit to Lowe’s or a home improvement project will cost more, along with new cars that use China-made inputs.

This is the beginning of his attack on consumers, but not the worst yet. Some of the most popular consumer items including toys, cell phones, and pharmaceuticals, were not included. A consumer backlash is the last thing the Trump administration needs right now as polls continue to show Republican candidates struggling in the run-up to the midterms. The widespread business outcry would also be hard to contain.

Still, this latest round of tariffs and the failed recent trade talks suggest more problems ahead for the relationship as both Trump and Xi harden their positions. 

Some China policy advisors have concluded that Trump is hell-bent on weakening China. That view casts the tit-for-tat tariff struggle in a far more damaging political light. Xi Jinping will be easily backed into a corner where he has no choice but to fight and show his people how strong China has become.

Trump’s advisors meanwhile, including Larry Kudlow, are feeding him the false impression that China’s economy is on the ropes and ripe for disruption. With a “winner take all” approach Trump will have to keep ratcheting up the pressure, no matter how much he breaks in the process.

With so much distrust and misinformation flowing freely, expect this dispute to go well into 2019 and affect consumers far more than at present.

The U.S. can include almost $200+ billion more in traded goods. China, out of categories to include by then, can opt for a trade war by other means by restricting U.S. business operations and increasing scrutiny of foreign investment.

To be sure this is no easy win for Trump, no matter how many times he says it. Tariffs are a blunt instrument. Come January the domestic environment, including Congress, may not be so supportive of his “get tough” efforts, which will have done little except to increase consumer prices and the cost of doing business.