Trade correspondent LC reports:
When President Trump and Chinese President Xi Jinping meet on June 28th-29th at the G20 Summit in Osaka, there is hope that the US President won’t feel the need to follow through on his threat to impose 25% tariffs on the remaining $300+ billion of Chinese imports (“List 4”) that haven’t yet been hit with tariffs. The betting is that the outcome of the meeting will be an agreement to resume negotiations. The US will meanwhile suspend action on List 4 tariffs but leave the earlier tariffs in place.
Whether a Trump-Xi meeting would even materialize had remained uncertain until June 18th, when President Trump tweeted: “Had a very good telephone conversation with President Xi…. We will be having an extended meeting next week at the G20… Our respective teams will begin talks prior to our meeting.” Had Xi refused to meet, the tariffs would likely have been imposed quickly. As it is, the threat remains that if the talks break down or President Trump is dissatisfied with what Xi offers, the outcome will be imposition of the tariffs.
But both sides have reason to back away from confrontation. Xi needs a deal to forestall the tariffs that would, if imposed, raise politically dangerous questions for him about his management of the US-China relationship. New tariffs would further harm China’s economy, also creating political difficulties for Xi, in addition to his embarrassment from Hong Kong’s extraordinary defiance.
The US president also needs a cool-down from confrontation. Domestic opposition to the List 4 tariffs has been so loud, so near unanimous, and argued so forcefully that they would badly hurt the US economy – that the president has a strong incentive to find a face-saving way to retreat from his tariff threat and to resume negotiations.
A consensus is meanwhile emerging among economists that the US boom is over and that a market decline or recession is in the making. This is clearly in error if good trade pacts are negotiated soon among the US, its major allies, and China. But if the tariff wars continue, economists prove correct, and the economy goes into recession, President Trump will have lost the most important argument for his 2020 re-election.
President Trump did offer what was seen as a good-will gesture to China. Vice President Mike Pence had long been scheduled to deliver a June 4th speech at the Wilson Center marking the 30th anniversary of the Tiananmen massacre. The speech was to focus on China’s current human rights abuses. That speech was then postponed to June 24th. But now that Xi has agreed to meet, it has been postponed indefinitely. That was a good move in terms of not creating an obstacle to a Trump-Xi meeting in Osaka but not so good from the standpoint of advancing the US “long game” of weakening the Xi dictatorship’s hold on China and its international credibility.
The US government did keep the heat on China’s human rights failings elsewhere. On June 21st the State Department published its annual International Religious Freedom Report. It had such extensive criticism of China’s anti-Uighur actions that Secretary Mike Pompeo explained how – in an effort to document “the staggering scope of religious freedom abuses” against the Uighurs in Xinjiang — a special section was added to the China section of the report.
Hearings in Congress
Although members of Congress of both parties support the US taking a strong position against China on economic as well as strategic issues and support most of the demands the US has raised in the trade talks, US Trade Representative Lighthizer was nevertheless criticized for the administration’s use of tariffs as its sole negotiating tool.
Senate Finance Committee Chairman Chuck Grassley (D-IA) urged the White House “to do everything it can to use tariffs as a last resort” and expressed his fear that using them in this way “will undermine our credibility with our current and potential trading partners and undo the benefits of our historic tax reform.”
Ranking Democrat Ron Wyden (D-OR), arguing against the effectiveness of tariffs, pointed out that “China’s market is more closed off to American-made goods than before the trade war began.” Moreover, he said “The President’s actions have driven away our allies…. As a result of this mismanagement on trade, the American people are faced with the prospect that everyday life… will become more expensive and less secure.”
Lighthizer responded, “If there’s a better idea than tariffs, I’d like to hear it…. I know one thing that won’t work with China and that is talking to them, because we’ve done that for 20 years.”
But this publication and others have urged from the beginning that this administration:
- Conclude good free-trade pacts with US allies, and
- Coordinate joint measures with allies to punish Chinese trade abuses, so that China faces a united opposition, rather than exposing the US to trade retaliation by itself.
EU leadership in disarray
Failure to conclude a US-EU trade pact prior to the recent European Parliament elections is proving to be an obstacle to trade progress for the moment. The European Council (a summit of the bloc’s national leaders) held a failed meeting on June 21st-22nd. The leaders were unable to agree on a candidate to replace Jean-Claude Juncker as President of the European Commission, the top bureaucratic slot. Because of that failure, they also didn’t agree on candidates for other high-level positions including president of the European Council, foreign affairs commissioner (the “High Representative”), and European Central Bank president.
European Council President Donald Tusk reported after the closed-door meeting that the leaders “had a full discussion of nominations, but “There was no majority on any candidate.” That was seen as signaling that none of the three front-runners before the meeting now have any chance of being selected. Tusk also said that a decision on Commission President must be made before the new Parliament takes over on July 2nd.
The EU leaders will meet again on June 30th to see if they can reach a consensus, with some of them expected to consult while they are in Osaka for the June 28th-29th G20 Summit. For the Council to agree, a candidate must be approved by leaders of 21 of the EU’s 28 countries representing at least 65% of the EU population. If they do agree on a candidate in this way, that person will still need to win approval from a majority of Parliament.
That’s according to the Spitzenkandidat process, the controversial current method for choosing the Commission president that is supposed to give power to the political parties that fared the best in the preceding European Parliament elections, as well as give power to both the national leaders and Parliament. President Emmanuel Macron opposes the Spitzenkandidat process while it is strongly supported by Chancellor Angela Merkel, worsening the French-German divide on EU issues. Moreover, the parliamentary parties are divided over their preferred candidates, and the effort to reach consensus has also been hampered by the rise of extreme left and right parties, though the more mainstream ones maintain a majority for now.
Something the European Council summit did get done: it warned London once again that despite the ascension soon of a new British prime minister, Brussels won’t reopen Brexit negotiations. As Tusk told reporters, “we repeat unanimously: There will be no renegotiation of the Withdrawal Agreement.” But further failure of EU leaders to find consensus on a candidate will be seen as an institutional failure of the EU and spur more anti-EU sentiment within Europe.
The US is attacked for farmer welfare
Meanwhile the US is coming under fire at the World Trade Organization (WTO) for giving government subsidies to farmers to compensate for exports lost because of Chinese retaliation to the US Section 301 tariffs. Seven countries led by the EU and China have released questions they intend to ask the US at the June 25th-26th meeting of the WTO Committee on Agriculture – which will likely throw the US representative on the defensive since none of the subsidies have yet been notified to the WTO. WTO rules require notification of trade-distorting subsidies, and while many countries don’t comply, the US has been prominent in denouncing other countries that don’t properly notify the WTO. The US has also called for tightening the notification rules. Hence the US notification failure is deeply embarrassing.
The Trump administration last year offered farmers $12 billion in subsidies and this year it is offering, it says, $16 billion. This raises the question of whether the US will exceed the $19 billion it is allowed to allocate to farmers annually under WTO rules governing trade-distorting agricultural subsidies. Meanwhile, the American Farm Bureau Federation is warning that if trade agreements aren’t concluded soon with Europe and Japan, US farmers will need a third round of government assistance.
In the US the subsidies are under attack for being a form of corporate welfare. Free-market supporters have long called for cutting US agriculture subsidies, while abroad the US is often criticized for spurring overproduction of commodities. The administration is also under attack for raising government spending. Already the handouts to farmers as compensation for the foreign retaliation against US farm products are costing more revenue than the Section 301 tariffs are raising, contrary to the president’s claim that the tariffs are a great cash cow.
June 25, 2019 update: two spelling errors corrected.
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