Are China Trade Negotiations Going the Same Way as the North Korean Summit?

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Ezio Gutzemberg/Adobe Stock

What a difference a few days in politics makes.

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Just last week many analysts, including this publication, were optimistically speculating that President Trump’s aggressive application of tariffs to force a major realignment of U.S.-China trade terms was actually paying off. Although the tone and nature of the president’s position shocked politicians and business leaders around the world, raising the specter of a trade war, the howls of protest from Chinese politicians were also matched by indications that inward investment could be relaxed and import tariffs on U.S. products could be reduced in an effort to reach some kind of settlement.

The New York Times, however, reports that as the president’s position on North Korea falls apart, so, too, is progress with China — and the two may not be unrelated.

The New York Times is no friend of President Trump, and it should be said we are not looking to take a partisan angle here. As with our previous post on the topic, looking at this from the perspective of the U.S. industrial consumer, the optimal outcome would be a negotiated settlement that avoided a trade war but achieved parity on tariffs, quotas, investment criteria, and respect for intellectual property, allowing U.S. producers to compete on a more equal footing with their state-nurtured Chinese counterparts.

Our position was one of mild surprise that the approach was working but enthusiasm that it should, and maybe we speculated Trump could pull off something that previous presidents had failed to do.

That the agenda appears to be falling apart, according to The New York Times, is due in large part to “ceaseless infighting and jockeying for influence among the White House trade team,” the paper states.

As an example, Treasury Secretary Steven Mnuchin said on Sunday that the United States would hold off on imposing tariffs on China, putting the trade war “on hold,” but hours later, United States Trade Representative Robert Lighthizer, warned the Chinese that the Trump administration might yet impose tariffs.

Then, on Friday, Mr. Trump’s chief economic adviser, Larry Kudlow, told reporters that China had offered to reduce its trade surplus with the United States by $200 billion. Two days later, he said that the number was merely a “rough ballpark estimate,” and he backpedaled on earlier comments.

Now, Commerce Secretary Wilbur Ross is out to negotiate face-to-face with the Chinese in Beijing, but it is unclear whose brief he is to pursue. There is an inherent conflict within the American team between those who want to secure a short-term deal that would benefit some industries and avert a potential trade war and those who want to pressure China for more fundamental change (a path, the paper says, Navarro and Lighthizer prefer).

Voters listening to speeches on the president’s campaign trail were probably expecting a more fundamental change in the nature of U.S.-China trade policy than a quick win for one or two industries. However, fundamental change is by its nature very complex and the president would no doubt have been satisfied with a deal that he could purport to be a win, even if it failed to address all of the inconsistencies.

Some in the administration appear more focused on a $200 billion trade surplus gap they would like to see substantially reduced than they are on the details behind why such a gap exists.

Last week the Chinese seemed ready to deal, willing to make commitments to buy American goods and by promising structural changes in their economy, but it would seem the Chinese are reluctant to make an outright commitment to reduce the trade deficit by a specific dollar figure. That in itself is not the only stumbling block the current U.S. administration’s reluctance to allow exports of what are considered sensitive or advanced military technology is a major problem for Chinese firms like telecommunications group ZTE, which we mentioned in a previous post.

Success in these trade talks is felt by some to be linked to the situation in North Korea, where Trump’s proposed summit with the North Korean leader next month has just been canceled. China is the only country with any real leverage over North Korea and appears less willing to cooperate following this trade dispute then they were some months ago. It would not be beyond Beijing to use cooperation over North Korea as a bargaining chip with the U.S., and that may be why Trump unilaterally pulled out of the June summit, fearing he was going to be held to ransom if he tried to pursue both agendas simultaneously.

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Let’s hope Ross has a clear mandate and agenda with which to work. The risk is lack of support or conflicting objectives from Washington will make his position untenable and, consequently, destined to fail.

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