 | may 15, 2020 18:43 •  425 •  |
Hopes rest with an economic rebound from the coronavirus pandemic.
President Trump may be irritated with China’s failure to buy more American products as required under the trade deal he celebrated at a White House ceremony in January. But he doesn’t seem prepared to do much about it.
The president this week has been openly critical of China’s performance in the deal’s first months, even threatening to “cut off the whole relationship” after Chinese orders for American products in the first quarter came in lower than last year.
“I made a great trade deal. The ink wasn’t dry when the plague came over from China. The ink wasn’t dry,” the president told Fox Business on Thursday. “I’m very disappointed in China. I will tell you that right now.”
Trump, who earlier this week ruled out renegotiating the deal, said he still expects China to buy the $200 billion in goods and services it promised. The president had threatened to “terminate” the deal if China did not deliver. But for now, he seems inclined to confine his response to public grumbling while counting on an export surge later this year -- even though some experts say it is now impossible for China to meet the deal’s targets.
The deteriorating economy may limit Trump’s ability to act. Imposing a fresh round of tariffs, the president’s preferred trade war weapon, could prove unpopular with more than 23 million Americans out of work and the economy in free fall.
“There’s a lot of political risk from blowing up the deal because the consequences would mean a tit-for-tat, back-and-forth between the U.S. and China at a time when potential Trump voters are already suffering,” said Scott Kennedy, a specialist on the Chinese economy at the Center for Strategic and International Studies.
The administration is further limiting U.S.-China ties in sensitive areas. On Friday, the Commerce Department said it was tightening regulations to block Chinese telecom giant Huawei’s acquisition of semiconductors developed with U.S. software and technologies.
Trump’s hopes of saving his signature trade pact are complicated by a wave of anti-China sentiment, a mood that reflects both opportunity and peril for his re-election campaign.
Americans by a 66-to-26 margin hold an unfavorable view of China, according to the Pew Research Center. On Capitol Hill, lawmakers have vowed to punish China for allegedly covering up the initial coronavirus outbreak and have sought to block a federal employee retirement fund from investing in Chinese stocks.
On Thursday, the Senate approved legislation that would impose sanctions on Chinese officials linked to the establishment of forced labor camps in China’s Muslim-majority Xinjiang province.
Amid rising doubts about the deal, Robert Lighthizer, the president’s chief negotiator, and Treasury Secretary Steven Mnuchin released a statement following a May 7 call with Chinese Vice Premier Liu He saying “both countries fully expect to meet their obligations under the agreement in a timely manner.”
To preserve his top trade accomplishment, the president must draw a line between being tough on China and too tough. In 2016, he rode mounting dissatisfaction with China on trade policy to the White House. And his re-election campaign already has begun airing ads that paint his likely Democratic opponent, former Vice President Joe Biden, as weak on China. The Biden campaign said Trump only talks tough on China.
To be sure, Trump has never been as uniformly hostile as Beijing’s harshest critics, treating China as a negotiating partner as well as a strategic adversary.
Even as hardliners push for the U.S. to decouple from China, the president has rejected several staff proposals to punish Beijing for foot-dragging, according to Derek Scissors, a China expert at the American Enterprise Institute. Trump remains hopeful that Beijing can improve the trade statistic he cares most about: the $345 billion gap between the value of what the U.S. sells China and what it buys from it.
“It’s too early to tell. But the point was to deliver export benefits to the U.S. before the election,” said Scissors, an occasional administration advisor.
Trump’s claim to have rebalanced the U.S. trade relationship with Beijing remains a staple of his pitch for a second term. The president insists that his Oval Office predecessors allowed China to “pillage” the U.S., stealing millions of jobs and hollowing out American manufacturing. While lavishing compliments on Chinese President Xi Jinping, he has promoted changes in Chinese business practices that could encourage more U.S. investment in China, not less.
At the same time, Trump has tried to capitalize on anger over the Chinese government’s alleged failure to warn the U.S. of the coronavirus, seeking in part to deflect attention from his own handling of the crisis. He issued an executive order Thursday authorizing financial support to strengthen domestic production of medical products needed in the fight against covid-19, a move applauded by critics of U.S. dependence upon Chinese suppliers.
Representatives of some major business groups fear the escalating tensions could crowd out needed cooperation on the pandemic while eroding lucrative commercial ties.
“It’s not helping anyone that there is a lot of blame and finger-pointing going on,” said Myron Brilliant, executive vice president of the U.S. Chamber of Commerce.
At the White House in mid-January, Trump and Liu signed the “phase one” pact. The president raved about the transaction, a scaled-down version of the comprehensive agreement the two sides had failed to complete in 2019, calling it a “really incredible breakthrough...a transformative deal.”
Describing an expected financial windfall for farmers, manufacturers and the financial services industry, the president enthused: “This is an unbelievable deal for the United States.”
The massive purchases were a key selling point, although the administration’s original goal was to secure structural changes in the Chinese economy, such as reducing subsidies to state-owned industries. Instead, those thorny issues were left to a “phase two” negotiation, which has yet to commence.
Amid the economic disruption caused by the pandemic, administration officials have grown concerned about prospects for one of the president’s chief accomplishments.
“There have been alarm bells ringing on the phase one deal for several days,” said Michael Pillsbury, a senior fellow at the Hudson Institute and one of the president’s closest outside advisors on China.
Under the agreement, China pledged to increase its purchases of U.S. products by $200 billion over the next two years. This year, orders were to rise by $76.7 billion, a 41 percent increase over the 2017 baseline of $188 billion, according to the U.S. trade representative’s office.
Those were considered ambitious, if not unreachable, targets even before the coronavirus shut down both countries’ economies. Through the end of March, total U.S. exports to China were running at just one-third the pace needed to reach the targets, according to Kennedy. With Chinese orders for U.S. autos, aircraft and energy products well below last year’s figures, Kennedy said it is now “impossible” for China to comply.
The pandemic does not explain the entire shortfall. Even as Chinese purchases of American energy products fell in the first quarter, Beijing ordered more from Middle Eastern suppliers, Kennedy said.
Still, the deal did not officially take effect until February 14 and China in recent months has bought massive amounts of some commodities. Corn purchases, for example, are at their highest level in seven years, according to the U.S. Grains Council, an industry group.
Progress has been made on other provisions. On April 1, Chinese regulators also eliminated limits on foreign ownership of securities firms, paving the way for companies such as Morgan Stanley and Goldman Sachs to take majority stakes in Chinese financial services companies.
The 91-page text of the trade agreement contains no interim deadlines. So China has not yet violated its obligations.
On Thursday, the president insisted in the Fox Business interview that China would fulfill its purchase commitments, though he exaggerated the amount at issue. “They will buy $250 billion,” he said.
The deal includes a provision providing for consultations if an “unforeseeable event” prevents either side from meeting its obligations. But China has given no indication it intends to invoke it.
Hawks in both capitals are agitating for moves to scupper the agreement. But the deal’s proponents say the arguments in its favor remain persuasive to Trump and Xi.
“There’s a lot of time to see how it plays out. I’m still very optimistic they’re going to comply with the deal,” said Steven Vaughn, former USTR general counsel. “All the reasons China had for entering into the trade agreement are still there. China’s incentives haven’t changed.”
Kelly Ann Shaw, a former White House trade official, also expects both countries to preserve the bargain they struck during more than a year of sometimes arduous negotiations. But the drive to strengthen trade ties risks being overwhelmed by rising tensions in other areas, including human rights, demands to repatriate American supply chains and national security.
“I don’t think the deal is bulletproof,” said Shaw, a partner at Hogan Lovells.
