President Donald Trump declared a trade war earlier this year with his decision to unilaterally impose tariffs on billions of dollars in Chinese imports. Now it’s time to see whether he can win.
The US President will meet face to face with his Chinese counterpart Xi Jinping on Saturday at a dinner in Argentina that White House economic adviser Larry Kudlow suggested on Tuesday could produce a “breakthrough” – or not.
The high-stakes tête-à-tête between the two leaders of the world’s largest economies is the culmination of a year of escalating tit-for-tat tariffs, and comes weeks ahead of a January 1 deadline set by Trump for levies on more than $200 billion in Chinese imports to jump to 25% from 10%. Intensifying matters is the additional threat by Trump to launch a third round of tariffs on $267 billion of Chinese goods, if he and Xi fail to end the trade impasse between the two countries.
“I know the President is extremely disappointed,” Kudlow, director of the National Economic Council, told reporters earlier Tuesday at the White House referring to China’s reluctance to meet US demands. He described Saturday’s dinner as an opportunity to “turn a new page,” if Xi can “step up” and offer new ideas after months of “disappointing discussions.”
“There is a good possibility to make a deal,” said Kudlow. But he stressed that China, which recently sent the US a 142-item offer letter, “must do more” to put an end to the trade war, including addressing intellectual property theft and forced technology transfers.
“President Xi may have a lot more to say in the bilateral, the dinner,” said Kudlow, who only made his first visit to China in April as part of an initial effort by the Trump administration to strike a trade deal. “I hope he does, by the way. I think we all hope he does so we can break through these various impasses. But at the moment, we don’t see it.”
Trump openly declared China’s offer as “not acceptable” in remarks to reporters in the Oval Office. “It’s a pretty complete list, a lot of the things we asked for, but there are four or five things left off,” Trump said. “We’ll probably get them, too.”
Kudlow on Tuesday suggested one reason why China may be hesitating to offer further concessions – for now – is because they aren’t used to a US President who is willing to do more than pay “lip service” to unfair trading practices. “Maybe China’s not accustomed to dealing with a strong president who will not relent,” he said.
While some experts suggest the Chinese could be preparing to offer a lot more over this weekend’s talks, their negotiators may be inclined to hold onto those cards closely until Xi can privately discuss an offer without risk of a leak. Beijing negotiators have been burned not once, but twice, by the United States for revealing the state of negotiations, including during China’s entry talks into the World Trade Organization in 1999.
“The Chinese have said orally through a variety of channels what they truly want to offer will be surprising to the upside, but they have not put any of that on paper,” said Scott Kennedy, the deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies. “But I don’t think the Chinese are going to make the kind of concessions the Trump administration wants.”
Trump’s tariffs have drawn complaints from American businesses, who are responsible for paying the import duties. It’s also spurred concerns about renewed inflation, just as the Federal Reserve is set to raise interest rates in December.
More than 100 S&P companies have already pre-emptively telegraphed during the third quarter earnings calls the damage further tariffs would impose on the US economy. Multiple companies including Walmart, the country’s biggest retailer, have warned that prices on everyday goods like shampoo, detergents and paper goods – such as napkins – will get more expensive for consumers.
Long-time US-Sino relations experts say that not since President Richard Nixon’s seven-day official visit to China in 1972 has a meeting between the two countries been so critical. The trip, which Nixon dubbed “the week that changed the world,” ended a 25-year diplomatic stalemate between the two nations.
“We are in a very transformative period that is bigger than Donald Trump,” said Robert Sutter, a professor of international affairs at George Washington University, who spent three decades in the government working on Asian foreign policy. “He could change the course in various ways.”
The Americans and the Chinese appeared to be moving toward a resolution earlier this month, when Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He held a phone call together, followed by a call between Trump and Xi. Commerce Secretary Wilbur Ross also hinted that a Chinese delegation led by Liu would come to Washington to start hammering out terms this week, before the Buenos Aires encounter, setting off a wild effort to unearth any detail about negotiations.
Then came Trump’s rejection of the Chinese offer – and a further escalation from Vice President Mike Pence in remarks to the Asia Pacific Economic Cooperation summit. “China has taken advantage of the United States for many, many years and those days are over,” Pence said.
The mixed messages from Washington to some extent reflects deep divisions in Trump’s own West Wing between free traders – including those with Wall Street backgrounds like Mnuchin and Kudlow – and hardliners like US Trade Representative Robert Lighthizer and White House trade adviser Peter Navarro.
Navarro made his disagreements with his colleagues clear in remarks to a think tank earlier this month – and was promptly brushed back by Kudlow, who said Navarro – a former economics professor who will not join the delegation to Argentina – “misspoke.”
With only days left before Trump departs for Argentina, plans for the working dinner still remain in flux, including whether the two leader’s spouses will join them and what topics will be on the agenda. Kudlow said there’s been “a lot of communication with the Chinese government on all levels” in the weeks leading up to the leader’s meeting, but said there are currently no other meetings scheduled between the two sides during the two-day summit that begins on Friday.
Whatever is announced in Buenos Aires will invert the usual progress of trade negotiations, in which leaders typically meet to formalize agreements already hashed out among lower-level aides. In the end, it’s likely to amount to a pledge by both presidents to end a tense year of damaging tariffs between the two economic superpowers and pick up further discussions – something Trump did with both the European Union and Japan earlier this year.
“What it really comes down to is the administration interested in taking the deal on the table or is the administration interested in pursuing another Cold War?” said David Dollar, a senior fellow in the John L. Thornton China Center at the Brookings Institutions and a former economic and financial emissary to China for the Treasury Department under President Barack Obama. “We’re going to see if Trump is a deal maker that takes the best deal available or if he’s going to follow this new hawkish view on China to contain and decouple.”
The President’s top economic adviser said ultimately the outcome will be in Trump’s hands.
“This is a big deal, this meeting, and the stakes are very high,” Kudlow said. “President Trump has a terrific track record as a negotiator, and he will know through facts and instincts how to handle this.”