Mnuchin: US-China Trade War "On Hold", But NAFTA Still "Far Apart"

In what looks to us like confirmation that the US has officially kicked the can down the road, Treasury Secretary Steven Mnuchin said Sunday that China and the US were putting a trade war "on hold" as the two sides work to hammer out a comprehensive trade agreement that will be acceptable to both sides.

Mnuchin, who was in Beijing last week for trade talks with top Chinese officials, emphasized that Trump isn't giving up on holding China accountable - the process is just taking longer than some had hoped.

"Right now Chris we're going to put the trade war on hold...we made very meaningful progress and we agreed on a framework. The framework includes their agreement to substantially reduce the trade deficit by increasing their purchases of goods," Mnuchin said, adding the two sides have agreed to numerical targets but the he didn’t want to disclose them.

"We’re putting the trade war on hold, right now, we have agreed to put the tariffs on hold while we try to executive the framework," Mnuchin said.

Mnuchin’s comments come after China and the US on Saturday released a joint statement in which China proposed to "significantly increase purchases" of US goods.

Moving on to the subject of ZTE, which President Trump said he'd work to get ZTE "back into business" at the request of Chinese President Xi Jinping, Mnuchin said that "President Xi asked President Trump" to look into the situation at the Chinese telecoms giant, which isn't a surprise, he said. Still, Mnuchin insisted that Trump wants us to be "very tough" on ZTE.

"The president wants us to be very tough on ZTE. And all he did was ask the secretary to look into this," Mnuchin said, referring to Commerce Secretary Wilbur Ross.

Of course, while "no trade war with China" is the headline that the Trump administration wants investors to focus on, the real news is that there might not be a Nafta deal until next year as Mnuchin says we're still "far apart" on Nafta.

Mnuchin added that Trump is more concerned with striking a good deal on Nafta than rushing something through this year.

"The president is more determined to have a good deal than he's worried about any deadline...So, whether we pass it in this Congress or we pass it in the new Congress, the president is determined that we renegotiate NAFTA."

Still, that doesn't mean Trump won't follow through on threats to withdraw from the pact or take other action, if he decides that's the best option, Mnuchin indicated.

"He has all his alternatives. I'm just saying right now we're focused on negotiating a good deal and we're not focused on specific deadlines," Mnuchin said.

"We're still far apart, but we're working every day to renegotiate this agreement."

The Trump administration blew a Thursday deadline set by House Speaker Paul Ryan for finishing the agreement. Ryan had said the Office of the US Trade Representative would need to wrap up negotiations by May 17 in order for Congress to vote on it this year because of various statutorily mandated notification and consultation periods involved in the consideration of trade deals. However, Ryan later said there might be some "wiggle room", hinting at a two-week extension of Congress's Nafta deadline.

That represents a significant de-escalation from when the US had threatened to slap $150 billion in tariffs on Chinese imports to punish Beijing for violating American intellectual property. China has vowed to retaliate by slapping tariffs on everything from US soybeans to airplanes. Yet a meeting between Vice Premier Liu He and President Trump in Washington, as well as the meeting between Mnuchin and other US officials with senior Chinese officials in Beijing, has significantly dampened tensions as the US has likely realized that it can't just strong-arm China into doing what it wants.