Trump Dims Hopes for New China Trade Deal
Date: Monday, July 13, 2020
Source: The Wall Street Journal
‘I don’t think about it now,’ the president says about additional trade talks with Beijing
President Trump damped expectations for a promised phase-two trade pact with China on Friday, saying the relationship between the countries has been too badly damaged by the coronavirus pandemic.
“I don’t think about it now,” Mr. Trump told reporters aboard Air Force One, where he criticized China’s response to the new coronavirus, which continues to spread rapidly throughout the U.S. “They could have stopped the plague, they could have stopped it, they didn’t stop it.”
A spokesman for the Chinese Embassy in Washington didn’t immediately respond to a request for comment.
When the U.S. and China inked their trade deal in January, the two sides described the pact as a first-phase agreement, to be followed by new negotiations toward a more expansive deal in a second and possibly third phase.
The world’s two largest economies never set a timeline for the second phase, however, and trade negotiations were quickly overshadowed as countries around the world grappled with the pandemic.
The economic fallout from the pandemic also made it increasingly unlikely that China would meet its targets for expanded purchases of U.S. goods under the phase-one deal, fueling further doubts about prospects for new talks.
“It’s not feasible to expect phase two to start until phase one is implemented and the overall environment of the U.S.-China relationship improves,” said Myron Brilliant, executive vice president and head of international affairs at the U.S. Chamber of Commerce.
In Beijing, officials were always cool to the idea of a phase-two deal—believing they had little to gain from U.S. demands that China cut government subsidies to domestic companies, downsize state-owned firms and ease the government’s grip on the economy.
Chinese leaders believe the state-directed model is responsible for the nation’s rise from poverty, and will be important going forward as it moves toward developing its own technology industry and cutting its dependence on the U.S.
The U.S. had a $308 billion trade deficit in goods and services with China in 2019, due to the U.S. importing far more goods than it exports. That deficit is little changed since 2016, when Mr. Trump took office, but is down from a peak imbalance of nearly $380 billion that was reached in 2018.
The president’s announcement that phase-two talks are on the back burner also means that U.S. tariffs on imports from China are unlikely to be removed soon. The U.S. has imposed tariffs on about $360 billion a year worth of goods from China. As part of the deal struck in January, the administration cut the rate from 15% to 7.5% on about $110 billion worth of goods, while leaving tariffs on the rest at 25%.
The tariffs must be directly paid by U.S. importers, who often pass the cost to consumers. Many of these businesses have opposed the tariffs on the grounds that they do more to hurt U.S. companies than to pressure China to change its policies, and are dismayed that the tariffs will remain in effect.
“We’re strongly disappointed that the administration doesn’t want to solve the high tariffs paid by U.S. businesses and consumers and doesn’t want to solve the high barriers to trade that some of our exporting industries face as well,” said David French, senior vice president of government relations at the National Retail Federation.
Mr. Trump made ending the trade imbalance a centerpiece of his 2016 presidential campaign, and began imposing a series of tariffs on Chinese goods starting in 2018 to pressure Beijing for concessions.
Talks initially focused on a comprehensive deal, but fell apart in May 2019, resulting in an escalation of tariffs. The U.S. accused the Chinese negotiators of backtracking in the talks. When negotiators revived talks in the fall, they focused on a narrower set of issues.
A centerpiece of the phase-one deal was a Chinese commitment to boost its purchasing of U.S. exports. But as coronavirus lockdowns shuttered first the Chinese economy, then the U.S. economy, trade between the countries—and trade globally—fell sharply.
The agreement called on China to hit specific dollar targets for agricultural goods, energy products, manufactured goods and services in 2020, and an even higher target in 2021.
In April and May, China began to step up its purchases of U.S. exports, but with six months of the year completed, it is nowhere near the pace necessary to hit the goals by year’s end. China is especially far away from meeting the goal for energy purchases, owing in part to a plunge in energy prices that has lowered the dollar total of any Chinese purchases.
Meanwhile, the trade in services between the U.S. and China, which includes tourism and higher education, remains severely hampered by travel restrictions.
China has made more progress in implementing other aspects of the deal, such as improving its intellectual property protections.
After completing the phase-one deal, the U.S. had said it would wait for future phases to negotiate on some of the most difficult issues—such as Beijing’s pressure on U.S. businesses to share technology with Chinese partners, and China’s heavy subsidization of many of its domestic companies. Those issues were not part of the deal signed in January.
At the time, Mr. Trump said that the U.S. and China would begin negotiating phase two “right away.” But he signaled then that a deal might not happen this year. “I might want to wait to finish it until after the election, because by doing that I think we can actually make a little bit better deal, maybe a lot better deal,” Mr. Trump said, assuming that he would be re-elected.
In addition to falling short of the purchase totals, U.S.-China relations have been severely strained by a host of issues not directly related to trade.
The Trump administration has repeatedly blamed China for being the source of the coronavirus pandemic, opposed China’s measures to limit Hong Kong’s autonomy, and become increasingly critical of human rights abuses toward Uighur Muslims in China’s Xinjiang region. China has said U.S. criticism on these issues could put phase one of the agreement in jeopardy.