Trade correspondent L.C. reports:
The US-China trade talks apparently aren’t going as well as US and Chinese officials indicated after USTR Robert Lighthizer and Treasury Secretary Steven Mnuchin held talks in Beijing last week. In a threat that took most observers by surprise, President Trump tweeted on Sunday, May 5th:
For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars…. ….of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!
Some reporters said the revived threat reflects the frustration with late Chinese resistance or backpedaling from earlier concessions. Hence, the President’s reference to China’s “attempt to renegotiate.” But it is also possible that the threat is a last-minute effort to squeeze Beijing into some final improvements to its offers in what is assumed to be the concluding round of talks, starting on May 8th when Chinese Vice Premier Liú Hè returns to Washington.
The President and his advisers have long declared that the US economy is in better shape than China’s and thus better able to withstand a tariff-war. Thus, the President assumes that the threat will scare Beijing into more concessions. Although the threat could prompt Beijing to cancel Liú’s trip, reports Monday from China indicate that Liú Hè and his negotiating team are still planning to come to Washington.
The White House might also have come under pressure from sectors of US industry that heard reports that Beijing will not agree to serious commitments on the US structural demands — including industrial subsidies, intellectual property protection, and cross-border data transfer — in some cases retreating from previous offers. China reportedly has been refusing to accept US demands on subsidies to state-owned enterprises, cyber-security, data transfer, and enforcement provisions. The Financial Times claims that “a lot of issues are being jettisoned from this negotiation because President Trump wants a deal.”
Senate Minority Leader Chuck Schumer tweeted in response to the President’s tweet: “Hang tough on China, President Trump. Don’t back down.” A weak deal, like a no-deal outcome, would be politically damaging. This reality might have pushed the President to make his threat with the hope that it would force China’s hand, and it does appear that Beijing did pull back from earlier commitments.
Whatever the back story, the President has already shown his attraction to tariffs and a willingness to use them rashly. His tweets show he still mistakenly believes that they are paid for by foreign countries and raise revenue for the US government at no cost to US consumers.
Whatever the President’s intention, the threat may have thrown US negotiators into a weaker position in advance of the coming week’s talks. If the US doesn’t accept a deal offered by China this week, then the President has to massively hike the tariffs, initially raising them to 25% on $200 billion of imports and eventually on another $325 billion (the remaining amount of US imports from China not already hit with tariffs). That would be a disruption of the US economy and, with the retaliatory tariffs China would unleash, a politically harmful move for the President. This would be worse than simply having the talks fail and leaving the existing tariffs in place.
Trump trade scorecard: much disruption, few gains
Following last week’s visit by Prime Minister Shinzo Abe to Washington to meet with President Trump, press comment suggests that the Prime Minister had prevailed in defending his interests against the President’s demands. At best, the US might get to the place where it would have been had it stayed in the Trans-Pacific Partnership (TPP).
This dismal showing tallies with the outcomes to date of the President’s trade policy in other areas. The minor changes to NAFTA that he wrested from Canada and Mexico are seen as providing little if any benefit, and the USMCA is not even assured of winning congressional approval. The small changes he made to the Korean-US (KORUS) trade agreement pushed that deal in a protectionist direction and are of little if any benefit to the US economy. And the trade talks with the EU are set to be highly confrontational as the two sides haven’t even agreed yet about the inclusion of agriculture. Brussels has made clear it will take a hard line overall.
Only at the WTO has the Administration had successes – in cases initiated by its predecessor – but its hostile stance to the institution has provoked anger from trading partners, many of whom are now using the WTO to challenge US trade policies.
President Trump gives in to pro-Jones Act pressures
President Trump has reportedly decided not to agree to Puerto Rico’s request for a 10-year waiver of the Jones Act (the 1920 Merchant Marine Act). A waiver would have enabled the islands to purchase LNG from the mainland. Jones Act-qualified vessels must be used to carry any cargo between US ports and these vessels must be US-built, -owned, -flagged, and -crewed. But since there are no Jones Act-qualified LNG tanker ships, Puerto Rico, like the Northeastern US, has to import higher priced fuel from abroad (including from Russia), carried by foreign ships.
The President met on May 1st with Louisiana’s two Republican senators, Bill Cassidy and John Kennedy, who represent a state with shipbuilding and port facilities that favor the Jones Act, along with several other senators. Cassidy said they “secured his commitment from the President to not go forward with the proposed waivers.” Sen. Kennedy released a statement saying, “after talking to President Trump, I am confident that he realizes how important the Jones Act is to Louisiana’s maritime industry and that no changes will be made.” The report angered opponents of the act, led by the oil and gas industry, but also including free market advocates and Puerto Ricans. They pointed out that no US ships are being used in the Puerto Rico LNG trade anyway given the absence of Jones Act-qualified tankers – so none would be threatened if the waiver were granted. But without the waiver, a part of the US has to import energy from foreign competitors at a time when the US petroleum industry is looking to expand.
A Competitive Enterprise Institute (CEI) scholar believes that last quarter GDP growth would have been an astounding 5% rather than 3% had it not been for the trade uncertainty hindering US capital investment.
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