Tariffs on China Imports Emerge as Hurdle to Trade Deal
Date: Wednesday, November 13, 2019
Source: The Wall Street Journal
Logjam in initial agreement centers on whether the U.S. has agreed to remove existing tariffs
WASHINGTON—Tariffs are emerging as the main stumbling block in efforts by the U.S. and China to come to a limited trade deal, a month after the two countries called a truce in their trade war.
The logjam centers on whether the U.S. has agreed to remove existing tariffs in the so-called “phase one” deal that the two countries have been working toward—or whether the U.S. would only cancel tariffs set to take effect Dec. 15, according to people familiar with the talks.
“The U.S. negotiators will try to exact the maximum they can before doing anything” on tariff relief, one of the people said.
President Trump said Tuesday that a “significant phase-one trade deal with China could happen, could happen soon.” But he added that he is prepared to increase pressure on China if the two sides can’t reach an agreement.
“If we don’t make a deal, we’re going to substantially raise those tariffs, they’re going to be raised very substantially,” Mr. Trump said in a speech to the Economic Club of New York.
The U.S. has wanted to use the leverage from tariffs as part of an enforcement mechanism, where tariffs would only come down and stay down if China complied with its commitments under the deal.
U.S. trade representative Robert Lighthizer initially opposed a move to add new tariffs on $111 billion in consumer goods on Sept. 1, the Journal reported. Yet despite those reservations, Mr. Lighthizer sees the latest tariffs, now U.S. policy, as leverage and isn’t eager simply to eliminate them without commitments from Beijing, according to the people familiar with the negotiations.
A spokesman for Mr. Lighthizer didn’t immediately respond to a request for comment. A spokesperson for the Chinese embassy in Washington didn’t immediately respond to a request for comment. A Chinese Foreign Ministry spokesman said Monday said there was “nothing further to update” on the tariff dispute.
“The sooner China starts making the kind of structural changes that President Trump is asking for, the better it will be for China,” said Stephen Vaughn, former top deputy to Mr. Lighthizer and a partner at law firm King & Spalding in Washington.
Mr. Trump’s tone was more optimistic Oct. 11 when he met with Chinese Vice Premier Liu in the White House and said the two nations expected to reach a final agreement that could be signed in “three, four or five weeks.”
The tariff fight broke into the open last week when, in a rare public comment on the substance of the talks, China’s Commerce Ministry said the U.S. and China had both agreed to roll back their tit-for-tat tariffs as part of the phase one deal.
The Chinese statement was contradicted later by Mr. Trump, a strong advocate of the tariffs that at last count are generating about $7 billion a month for the U.S. Treasury.
“These teams just don’t seem capable of closing negotiations,” said Wendy Cutler, a former senior trade negotiator in the Obama administration and managing director of the Asia Society Policy Institute in Washington.
The path to closing the phase one deal was hurt by the decision by Chile’s government to cancel this week’s planned Asia-Pacific summit, the likely venue for Mr. Trump and China’s President Xi Jinping to sign an accord.
Rigid diplomatic protocol and divisive issues make it hard for Washington and Beijing to schedule another meeting to sign the deal, and both leaders need to be present for any pact to have sufficient force and staying power, trade experts say.
Sen. Chuck Grassley (R., Iowa), whose farm state has been hard hit by the trade war, said he maintains a “pretty positive” outlook that the conflict will be resolved. Tariffs will be “one of the last things decided because the tariffs are leverage to get other things that we want,” Mr. Grassley told reporters.
Others in the administration have been less enamored of tariffs, in part because the duties are paid by U.S. businesses and ultimately passed on to consumers.
China may have counted on that opposition in the Trump administration and the U.S. business community in its campaign to roll back tariffs, according to people following the talks.
Mr. Trump has only reluctantly rolled back any significant tariffs. One of the few examples was when Mr. Grassley and other Republican lawmakers persuaded him to eliminate steel and aluminum tariffs on Canada and Mexico. In September, the U.S. collected a record $7 billion in tariffs on imports.
Still, tariff relief is the key area China has insisted on, and the two sides in May came close to a deal that might over time have removed all the punitive tariffs both sides had imposed. At the time, U.S. officials blamed their Chinese counterparts for pulling back on prior commitments.
The American side has a potentially problematic negotiating arrangement.
Typically, U.S. presidents set policy parameters, with senior officials working out the details. Yet under Mr. Trump senior officials often have the latitude to seek deals and dispute over policy themselves, with Mr. Trump making a decision at the end, accepting or rejecting a proposal based on economic, political or other considerations. Trade experts say that uncertainty makes it difficult to win confidence from other side in the approach to a deal.
“Trump isn’t a closer,” said a former U.S. trade official. “He likes to keep it open—it’s more dramatic.”
Lately Mr. Trump, facing impeachment and a host of Democratic presidential challengers, has signaled he is weighing political factors. This month he floated Iowa as a possible site for signing the phase one deal, which is meant to restore Chinese purchases of American farm products.
Administration officials have worried that leading Democrats and even Republican China hawks would criticize a deal that failed to win structural reforms from Beijing.
Yet in the latest framework Mr. Trump would at first sign only a phase one deal, allowing him to blunt any criticism with assurances the issues would be addressed in future phases.
For now, both sides appear to be holding out for the best version of phase one they can get, since the outlook for future phases is unclear.
“They are dying to make a deal,” Mr. Trump said of the Chinese side on Tuesday, adding that “we are the ones deciding whether or not we want to make a deal.”