President Trump treads carefully ahead of meeting with President Xi |
Creeping anxiety about costs of a prolonged trade war between the US and China
PRESIDENT Donald Trump is projecting a steely façade as he prepares for a critical meeting on trade this weekend with President Xi Jinping of China. But behind his tough talk and threats of higher tariffs is a creeping anxiety about the costs of a prolonged trade war on the financial markets and the broader economy.
That could set the stage for a truce between the US and China, several US officials said, in the form of an agreement that would delay new tariffs for several months while the world’s two largest economies try to work out the issues dividing them.
Such an outcome is not certain. Administration officials have expressed deep disappointment with China’s response to Trump’s pressure so far, characterising it as a list of proposals, transmitted in Chinese, which they say would do little to curb China’s theft of US technology or address its other predatory trade practices.
But Trump has signalled a new willingness to make a deal with Xi, a leader he has treated solicitously and will meet over dinner on Saturday in Buenos Aires, Argentina, after a summit meeting of leaders of the Group of 20 industrialised nations.
The gyrations in the stock market, the rise in interest rates and thousands of lay-offs announced by General Motors this week have all rattled Trump, officials said, fuelling his desire to emerge from his meal with Xi with something he can claim as a victory.
“There’s a good possibility that we can make a deal, and he is open to it,” Trump’s chief economic adviser, Larry Kudlow, said on Tuesday. But if the meeting failed to produce a breakthrough, he said, Trump was “perfectly happy to stand on his tariff policies.”
At the moment, the administration plans to raise existing tariffs on $250 billion (R3.47 trillion) worth of Chinese goods, to 25 percent from 10 percent, on January 1. Trump has also threatened to impose tariffs on an additional $267bn of Chinese goods – a step many fear would plunge the two giants into a full-fledged economic cold war.
If the two leaders agree to talks, however, officials said Trump would most likely postpone the increase to 25 percent and hold off on any new tariffs. That would be similar to a deal he struck last July with the EU, in which he agreed to delay car tariffs in return for a pledge by Europe to buy American soy beans and natural gas.
The divisions inside the West Wing over trade remain fierce, as they have since the beginning of Trump’s presidency, and the contest for Trump’s ear will most likely continue until the moment he sits down with Xi in Argentina. More mainstream advisers like Kudlow and Treasury Secretary Steven Mnuchin are urging him to compromise, while hard-liners like Peter Navarro, the director of the White House trade office, argue that he should keep ramping up the pressure on China until it folds.
Navarro, a favourite of Trump’s, had initially been excluded from the trip to Argentina, which led some to conclude that the hard-liners had lost ground. Trump also sided against Navarro after Kudlow took a shot at him on television. But the US trade representative, Robert Lighthizer, has since authorised Navarro’s travel, raising the prospect that he will be on hand to encourage Trump to play hardball.
For Lighthizer, a veteran trade lawyer who has sued China for flooding the US market with cheap steel, the negotiations present an opportunity to drive a hard bargain. But he also sees the meeting between Trump and Xi as a potential danger, especially if Trump opts for a quick handshake deal that would delay or scrap the new tariffs in hopes of buoying jittery markets, according to people familiar with his thinking.
Another US official said the major internal debate now was over the scope of a compromise Trump could offer Xi: postponing the increase in tariffs to 25 percent, plus the $267bn in new tariffs – or only the new tariffs.
That underscores how much Trump’s position has changed from a few months ago, when he announced sweeping tariffs on China, asserted the Chinese were not yet ready to negotiate an agreement and declared that trade wars were “easy to win.”
Trump is acutely aware of the threat an economic downturn poses to his presidency. That has made him receptive to the counsel of moderates like Mnuchin and Kudlow, as well as outsiders like the Wall Street financier Stephen A Schwarzman, who have been warning him he will be blamed for job losses, market losses and other economic damage from a prolonged trade war with China. | NewYork Times