Trade War: Politics Versus Economics
NEW YORK – March 2, 2019
Trade talks between the United States and China collapsed at one point last week because of an impasse at the deputy level and were only salvaged when the chief US negotiator harshly reprimanded the Chinese side, White House economic adviser Larry Kudlow revealed on Thursday.
“The first day of the deputies’ meetings went very poorly,” Kudlow told CNBC, referring to discussions on February 19 led by deputy US trade representative Jeffrey Gerrish. “And the second day was canceled because of that.”
After the breakdown of the discussions, US trade chief Robert Lighthizer “read them the riot act,” Kudlow said.
Chinese Vice-Premier Liu He “responded ... and all of a sudden everything picked up,” he said.
Kudlow, who is director of the National Economic Council, was part of the high-level discussions, which were extended from two days to four as both sides sought to reach consensus on a number of issues.
“Vice-Premier Liu He and his top deputies worked very well with us – very well with us – in those last three or four days and the extended weekend,” he said.
Considered a hardliner on trade, Lighthizer won bipartisan praise from lawmakers on Wednesday for his tough stance on Beijing during a hearing before the US House Ways and Means Committee.
The chief negotiator had time and again “developed a vision that many of us on this committee will support vigorously,” said Representative Richard Neal, Democrat of Massachusetts and chairman of the committee.
“We believe that the structural problems that [face] America, as it faces its trade relationship with China, are well observed” by Lighthizer.
But since President Trump announced on Friday that he was postponing the tariff increase on $200 billion of Chinese imports, tensions have risen between him and Lighthizer, according to a recent report by the New York Times.
Last week, Trump and Lighthizer sparred in front of journalists — and Chinese representatives led by Vice Premier Liu He — over whether "memorandum of understanding" is the right phrase to term the agreement that the US and China are negotiating.
The two sides were reportedly drawing up six MOUs which would form the building blocks of a final deal. But Trump objected to the use of the term, arguing that "they don't mean anything." Lighthizer gave in after some back-and-forth with his boss and opted to use "trade agreement" instead.
"We saw just the other day the president has the power to overrule [Lighthizer], even in the terminology of the deal ... Robert Lighthizer had to very quickly drop that phrase and get on with the Trumpian language like a 'trade deal,'" Ferguson told CNBC's Closing Bell on Wednesday.
Providing an update to lawmakers on the status of negotiations during Wednesday’s hearing, Lighthizer said that “much still needs to be done both before an agreement is reached and, more importantly, after it is reached, if one is reached” -- that's a contrast to Trump's earlier claim that a trade deal with China was already in "advanced stages."
But Lighthizer confirmed that the sides had come to a consensus on a mechanism of enforcement.
Documents had already been prepared detailing agreements on structural issues such as theft of intellectual property and forced technology transfer – as well as some non-tariff barriers – Kudlow said, adding that the “de-emphasis of [Made in China] 2025 and the significant reduction of China subsidies to those target [industries] is part of the documents.”
“It’s a question now of waiting for the other side to come back … and shall we say, sign on the dotted line,” he said.
US Treasury Secretary Steven Mnuchin said on Thursday that the US was working on a 150-page document that included “very detailed agreement for some very significant commitments.”
Also speaking to CNBC, Mnuchin said the commitments were structural, “but we still have more work to do. And we hope to … make progress this month, and if we do there would be a summit between the two presidents.”
Kudlow said he expected a meeting to happen in late March at Trump’s Mar-a-Lago resort in Florida.
The problem is that Trump now has differences in approach and tactical goals, even with his supporters in his own administration. Trump needs a PR victory in order to increase his chances of re-election in 2020. He may well look at things this way: The main thing is to be re-elected, and the rest -- later. To do this, he could make temporary concessions to China (we discussed this issue in detail in our material).
Lighthizer is a representative of the US industrial sector, and he needs the toughest deal possible with China, and, as he said, "yesterday." He’s the one demanding that China abandon industrial subsidies and respect American intellectual property rights in technology.
Trump and Lighthizer will have to negotiate, because their conflict can bring the situation to the point that they both lose, and without the Trump in the White House, Lighthizer and American industrialists will receive nothing at all.