With just three weeks left until the deadline for the US and China to reach a trade deal, there has been remarkably little progress: after several months of talks, the two sides are still far apart on major issues, as Larry Kudlow admitted earlier on Thursday, even as new multibillion-dollar U.S. tariffs are set to kick in next month if no accord is achieved.
According to the WSJ - with US negotiators set to meet their counterparts in Beijing next week in an effort to strike a comprehensive accord that President Trump insists include "deep structural changes" to China’s economy - US Trade Rep Robert Lighthizer and Treasury Secretary Steven Mnuchin, who are heading the talks next week, "lack the usual essentials for a comprehensive deal" - not only do the two sides not have a draft agreement that specifies where they agree and disagree, but, as reported earlier, Trump said he was unlikely to agree to meet Chinese President Xi Jinping before the March 1 deadline to hammer out final compromises, contrary to prior, more optimistic expectations. Absent an impromptu meeting, Trump and Xi are scheduled to meet at the G20 summit in Japan at the end of June, by which time hundreds of billions in new tariffs would have kicked in.
“Normally at this stage of negotiations, you’d be exchanging drafts of a joint text,” said Christopher Adams, a former Trump Treasury Department official and trade negotiator who is now at the Covington & Burling law firm. “If it’s all about something enforceable and verifiable, it needs to be memorialized [in a document]. They seem to be some ways yet from having that essential element.”
The lack of any progress is a growing concern to American business leaders who fear the economic and market consequences of a failure to reach a deal, and are pushing both sides to compromise. Among those pushing for deal is Blackstone CEO Stephen Schwarzman, who the WSJ reports has been phoning Mr. Trump and his senior advisers to warn that the failure to strike a deal will undermine the economy and roil markets, which have increasingly priced in an amicable end to U.S.-China economic hostilities. To buttress his case, Schwarzman has told Trump that uncertainty about China is weighing on business investment and consumer confidence, depressing the US economy.
At the same time, Schwarzman and other business leaders, including former Treasury Secretary and bailer out in chief Hank Paulson, are also urging senior Chinese officials to make enough concessions to US negotiators to allow Mr. Trump to claim a victory, including to agree to a way the U.S. can enforce the deal should China fall short of its commitments.
Even without the outside prodding, some of Trump’s outside advisers remain convinced the two sides will reach a deal, even if it is a limited pact that involves mainly purchases and pledges China has already made to open the auto, financial services and other markets on the gradual path. "The two sides could then agree to negotiate further over tougher issues, including Chinese subsidies for domestic companies and forcing Chinese state-owned enterprise act more like private companies", the WSJ adds.
That may prove to be too optimistic, however, because China appears to be convinced that Trump will cave no matter what.
Michael Pillsbury, a scholar at the Hudson Institute China who consults with the White House, said Chinese officials seem confident of a deal because they believe Trump needs the political boost and is being counseled by conciliatory business leaders.
"My Chinese sources seem remarkably confident that without any concessions, the Trump administration will drop its tariffs or grant them an extension of many more months" to continue talks, Pillsbury said.
Of course, that has been China's stance for a while, and yet so far Trump has resisted caving without extracting concessions; furthermore, with the market surging, any external pressure on the president from his beloved "barometer" of his presidential performance, is non-existent.
Worse, Trump may be convinced that only by getting China to caver first will he insure his re-election:
"There is an absolute focus at the White House on what policies, tactics and agreements they need to do to keep the economy humming” and give Mr. Trump a powerful reelection message, said a longtime GOP strategist who talks regularly with senior White House officials. Those calculations include a quick deal with China.
Should both parties indeed be convinced that the other side will cave first, then it is almost assured that tariffs will jump as scheduled on March 1.
As for the most critical US demands, it is unlikely that they will be met by Beijing. Lighthizer, a longtime critic of China’s trade practices who is especially influential with Trump, last week called enforcement the “foundational issue” in the talks. “We have to be in a position where the United States can enforce its rights,” he said, after ticking off the number of times where China hasn’t lived up to commitments.
Even here, though, there is a problem: the U.S. hasn’t yet decided what sort of enforcement mechanism it wants, while China sternly rejects having the U.S. judge its progress and enforce its findings through tariffs.
As such, it is somewhat confusing where all the optimism for an imminent deal comes from.
Last week, China’s chief negotiator, Vice Premier Liu He, and a team of Chinese negotiators talked with their U.S. counterparts in Washington, D.C., with the market once again confident that some tangible outcome would be announced. It wasn't.
Instead, the Chinese team came with very few new proposals, the WSJ reports, adding that the Chinese delegation merely spun their wheels and reiterated pledges made by Xi and other senior Chinese officials to open markets over the next few years.
For example, Chinese officials said they would increase purchases of U.S. beef, which they initially halted in 2003 after mad-cow disease scare, however, in 2017, China started importing U.S. beef again even if it retained some restrictions.
And as experts confirm, there is little reason to expect a tangible change this time: James Green, who until last year was the U.S. Trade Representative’s top official in Beijing, said he doubts Chinese negotiators would come up with a raft of new proposals to jump-start talks.
The negotiators need to get a consensus from more senior officials for new plans and are wary of being tagged as weak with the U.S., he said. “That government system doesn’t do well in producing new initiatives,” said Mr. Green, now a senior fellow at Georgetown University.
Which is why, given the major gaps in negotiating positions and what has been said to be "pressure on Trump" to make a deal, some trade experts - and Beijing as well - figure he will settle for a partial deal by March 1 and continue negotiations.
Others are worried that Trump will concede in deed, if not in tweet: some trade associations are concerned that Trump will settle for a deal that doesn’t press hard for systemic change in Beijing. Before Trump met with Mr. Liu, for instance, the Biotechnology Innovation Organization, a trade group, urged U.S. negotiators to be “resolute and insist on a deal with enduring commitments and not only purchases of U.S. goods."
They may have a point: during an Oval Office session, Trump cited six times Liu’s pledge to buy more soybeans, calling it “a sign of good faith.” He didn’t mention the term “structural,” though he did highlight the phrase in his State of the Union address earlier this week.
With Trump having already caved on the topic of the Border Wall, and lifting the record-long government shutdown (even as a second shutdown may be imminent), sparking a firestorm of criticism from some of his most conservative fans such as Ann Coulter, Trump may have no choice but to keep pushing for full Chinese concession, although absent an imminent collapse in the Chinese economy it's unclear why Beijing would fold, lest he be seen as just another John Boehner. Alternatively, with the S&P500 refusing to slide, providing China with some much needed leverage, it's difficult to see just why Trump would agree to major concessions in a trade feud that has so far defined his presidency.
Ironically, for the deal to happen, the market will have to realize that a negative outcome is the more likely of the two, and crash thus making a deal far more likely. One look at the market, however, shows that nobody is in any particular rush to start selling, especially after Steven Mnuchin made it clear that any substantial drop will lead to even more calls to the Plunge Protection Team.