U.S. weighs trade deal with China
Agreement could come before talks with N. Korea
WASHINGTON — President Donald Trump, facing an economic war with China and a momentous meeting with North Korea, is considering a trade deal with Beijing that would soothe tensions and clear the way for his historic encounter with Kim Jong Un. But it would risk abandoning the president’s broader goal of punishing China for years of pressuring U.S. companies to hand over sensitive technology.
Chinese negotiators are preparing to offer the administration a deal to buy up to $200 billion worth of American goods, which would allow Trump to claim victory in his campaign to reduce the trade deficit with China and rebalance the United States’ trade relationship with its biggest economic rival, according to people briefed on the deliberations.
But the Chinese promises would be largely illusory, economists cautioned, given the structural hurdles in China to buying more U.S. exports and the sheer amount of goods the United States would have to produce to meet Beijing’s demand.
Under the deal being discussed, China would pledge to buy substantially more American goods, including agricultural products like soybeans, as well as semiconductors and natural gas. That could theoretically reduce its trade surplus with the United States — which hit $372.5 billion last year — by up to $200 billion, though the real number would most likely be lower.
In return, China is asking the United States to set aside tariffs and investment restrictions it has threatened against Chinese companies. That includes lifting sanctions on the telecommunications giant ZTE, which faced ruin after losing access to its U.S. suppliers, and relaxing export controls that prevent U.S. companies from selling sensitive technology to China.
For Trump, his motive may be diplomatic as much as economic: He needs China to use its influence with Kim, who has suddenly thrown a cloud over his planned meeting with Trump in Singapore next month.
The president said Thursday that North Korea’s threat to cancel the summit meeting came after Kim met for a second time in China with President Xi Jinping. That meeting occurred on May 8, just a few days before a high-level delegation from China arrived in Washington on Tuesday to try to break a deadlock on trade.
“For various reasons, maybe including trade — because they’ve never had this problem before; China has never had this problem with us — it could very well be that he’s influencing Kim Jong Un,” Trump said to reporters in the Cabinet Room, referring to the Chinese president. “We’ll see what happens.”
Trump insisted he would drive a hard bargain with China, noting that it had become “very spoiled” in trade negotiations with previous U.S. administrations. But his explicit linkage of trade and the North Korea meeting — a diplomatic coup that he sees as a signature accomplishment — deepened the fears of critics that he might sacrifice his core trade agenda.
On Thursday, Trump met privately in the Oval Office with Liu He, China’s vice premier and the top economic adviser to Xi, who is expected to present the trade deal to the president’s advisers Friday.
Trump’s ability to stay focused on his broader trade agenda could be complicated by a bitter rift on his economic team. Peter Navarro, the White House trade adviser most closely identified with tough policies toward China, is being excluded from meetings with the Chinese by Treasury Secretary Steven Mnuchin, who is leading the negotiations with Liu.
The discord between the two men boiled over this month during a trip to Beijing, when they got into a profanity-laced shouting match after Mnuchin cut Navarro out of another meeting with Liu. Treasury officials said Navarro was excluded because of protocol, not because of his hard-line views, but the two men are starkly opposed on how best to deal with China.
Mnuchin, a former Goldman Sachs banker, is eager to broker a deal that would defuse a trade war with China, officials said. Navarro, an academic who has written books with titles like Death by China, helped mastermind the investigation into whether China was stealing technology that led Trump to impose tariffs on $50 billion worth of Chinese goods and threaten levies on another $100 billion worth.
Economists say that the purchase by China of $200 billion more in American goods per year — an amount equivalent to more than half the annual U.S. trade deficit with China — simply is not practical. “The short answer is these are unrealistic numbers,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics.
Even if the Chinese stopped buying other foreign products, like Airbus airplanes from the European Union or soybeans from Brazil, and purchased solely U.S. products, it would add up to only a small fraction of the $200 billion total they are promising to purchase. “It would even be a stretch to get it to $50 billion,” Bown said.
That is because the U.S. economy is running near its full productive capacity, meaning it would not be able to produce enough new goods to meet Chinese demands, especially in the short term. In that scenario, the United States would probably stop selling airplanes, soybeans and other exports to other countries and sell them to China instead — shrinking the U.S. trade deficit with China but leaving the U.S. trade deficit with the entire world unchanged.
And several categories of military-related equipment the Chinese want to buy are still restricted by congressional sanctions dating back to China’s bloody crackdown on protests in Tiananmen Square in 1989. Chinese officials are pushing for greater access to U.S.-made military systems and advanced technologies just as the Trump administration and Congress are weighing new rules that would move in the opposite direction, by curtailing that access.
The president has long drawn a connection between trade and security with China — suggesting that China’s help in pressuring North Korea could affect how he treated China on trade.