President Donald Trump is growing closer to sealing a trade deal with China, but some advisers are urging the White House not to rush it in the interest of calming nerves on Wall Street.
Instead, China hawks are pushing for an agreement that would continue to keep financial markets on edge with an ever-present threat of tariffs and the prospect for more trade strife between the two economic powers.
“Trump has done what everyone said was impossible — catch the Chinese off guard. They never thought he would use the weapons at hand. Now Wall Street is convincing him ‘he needs a win’ — that’s the insidious nature of this,” Steve Bannon, Trump’s former senior adviser, told POLITICO.
As Trump prepares to meet with Chinese President Xi Jinping later this month, the pressure is on the president to strike a deal that continues to give the U.S. the upper hand with Beijing. That includes pressing to allow the U.S. to re-impose tariffs while denying Beijing the opportunity to retaliate with counteractions.
Mixed messages on the status of an agreement have been coming from two sides close to the White House: Advisers who want to calm the markets and at the same time appease Trump’s fixation on stock performance, including National Economic Council Director Larry Kudlow and Treasury Secretary Steven Mnuchin, have been expressing optimism in recent days that a deal is almost completed. But China hawks — including Trump’s lead trade negotiator, Robert Lighthizer — have been suggesting a pact is still a ways away.
Trump is said to badly want a deal by the end of the month to both goose the stock market returns and avoid any fallout that could further slow an economy that appears to be losing altitude.
“We have encouraged the president to stay tough and we believe he will,” said Dan DiMicco, who advises Trump on trade issues and is a supporter of his tariff policies.
Trump’s failure to clinch a deal on denuclearization with North Korean leader Kim Jong Un has fueled speculation the president might be more primed to prove himself as dealmaker-in-chief with China.
But DiMicco, former CEO of Nucor, the nation’s largest steel producer, said that’s only further evidence that Trump might not decide to agree to anything if the terms aren’t right.
“Having meetings between leaders is no guarantee of a deal being consummated, as we saw with Kim. It won’t be any different with Xi,” he said.
China has reportedly offered to buy an immense amount of U.S. farm and energy goods as part of a deal, but sources close to the talks say Beijing has made little progress in addressing Washington’s core complaints.
Hard-liners say the final deal needs to address China’s state-run economic policies the U.S. accuses of putting U.S. firms at a disadvantage. They also say the agreement needs to have a way to continually verify that Beijing is living up to its commitments; if it isn’t, the U.S. needs to immediately be able to take action.
If those commitments aren‘t there, “then I would not be surprised to see President Trump walk,” DiMicco said.
Bannon said Trump “gets the nature of these massive negotiations.”
“You can’t do this quickly given the complexity. It will take as long as it takes, could be till the end of the year,” he said.
Secretary of State Mike Pompeo, who is in Iowa this week, said he was “hopeful” a deal could be reached and that “lots of progress has certainly been made.” But he remained cautious about prejudging success.
“I’ve been involved in a lot of negotiations. They can fall apart at the last minute for sure,” he warned in a radio interview.
Trump has drawn praise from both Republicans and Democrats for confronting China’s state-run economy and policies that some view as an existential threat to U.S. innovation. Under his direction, the administration has imposed tariffs on $250 billion worth of Chinese imports over what it says have been unfair practices.
Trump’s administration has justified the tariffs over complaints that U.S. companies are forced to hand over valuable technology to do business in China. It also accuses the Chinese government of enabling cyber theft of sensitive commercial information and trade secrets.
China has retaliated against U.S. tariffs by imposing its own tariffs on U.S. exports, primarily hitting U.S. farm goods like soybeans and pork and causing pain among Trump’s rural base of support.
The imposition of tariffs on Chinese imports and China’s retaliation has brought pain to some U.S. companies, farmers and consumers. But allies and critics alike agree the moves have gotten Beijing’s attention. Trump agreed to hold off on a planned March 1 escalation of tariffs as the talks progressed.
Lighthizer, the U.S. trade representative, said last week that “much still needs to be done” to reach a deal and ensure it is properly enforced.
Lighthizer also promised lawmakers a final agreement will allow the U.S. to act unilaterally to reimpose tariffs. He outlined a process of regular meetings among officials where the U.S. could confront Beijing over any breach to the agreement.
China is now being pressured to accept a deal in which they would not retaliate to any tariff punishment by the U.S., which experts say could be a tall order.
“It clearly veers into a loss of sovereignty for the Chinese and could be rejected on this ground,” said Mary Lovely, a professor of economics and China expert at Syracuse University.
But China could accept the option of no retaliation knowing there are other levers to hurt U.S. exporters. In the past, it has taken actions such as delaying customs procedures or refusing shipments for minor reasons as a way of punishing American firms.
“These are the problems that arise when one side tries to force its will on another, without making the deal incentive-compatible for both trading partners,” Lovely said.
Brad Setser, a senior fellow at the Council on Foreign Relations, said the enforcement mechanism envisioned “all hinges on the Chinese commitment not to retaliate.”
“That would no doubt last only as long as the Chinese agreed with the U.S. that China wasn’t living up to its commitments,” he said.
One source with knowledge of the talks said he believes the deal will be very hard to enforce because the two sides have not sufficiently defined the expected outcomes.
The source, who asked to remain anonymous because of the delicate nature of the negotiations, said he expects there to be language saying China is not allowed to used its anti-monopoly law to pursue industrial policy.
But “they haven’t defined what does it mean to use your anti monopoly laws as an industrial policy, right? So, how can you enforce it? That’s the problem,” the source said.
In another part of the agreement, China is expected to pledge to eliminate all market-distorting subsidies, including those that fuel overcapacity in the steel and aluminum sector, and those used to boost 10 different high-tech sectors under the Made in China 2025 program, the source said.
“But the U.S. government did not demand that the Chinese government table a comprehensive list of its market-distorting subsidies. So there’s no common understanding between the two sides as to what are the market distorting subsidies,” the source said. “It’s just this broad language.”
The administration’s reluctance to provide detailed briefings for the business sector makes it hard for groups like the U.S.-China Business Council to influence the final outcome.
Still, the group continues to hear from both governments that they are making substantive progress on the main structural concerns, such as industrial subsidies and forced technology transfers, said Erin Ennis, vice president at the U.S.-China Business Council.
“The details are incredibly important, both from a transparency perspective and from a desire to have whatever the final outcome be the best possible agreement,” Ennis said. “We would like to have as much information as far in advance as possible so that we can provide feedback.”
By ADAM BEHSUDI, BEN WHITE and DOUG PALMER