China claims tariffs will go, but others express doubts


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  • Friday, 08 Nov 2019

WASHINGTON: Beijing’s announcement Thursday that the U.S. and China have mutually agreed to roll back tariffs as part of a “phase one” trade accord lifted financial markets, but questions remained over how much ground—if any —the Trump administration had agreed to give.

Neither the White House nor the U.S. trade representative issued a public response to China’s statement, and there were conflicting reports from within the Trump administration as to whether there was a firm commitment to reduce tariffs.

Optimism that the trade war was finally nearing an end was raised by comments from a Chinese Commerce Ministry spokesman in Beijing on Thursday.

“If the phase-one deal is signed, China and the U.S. should remove the same proportion of tariffs simultaneously based on the content of the deal,” Chinese Commerce Ministry spokesman Gao Feng said at a regular press briefing.

“This is what [the two sides] agreed on following careful and constructive negotiations over the past two weeks,” he said.

One U.S. official concurred that the two sides are planning to roll back tariffs as part of an initial trade pact—which would indicate that reports earlier this week that such a rollback was under consideration had progressed.

But two other people familiar with the administration’s thinking disputed that a formal rollback plan had been agreed on.

“There are no plans to roll back any tariffs in exchange for phase one,” said one of the people. Chinese officials are “trying to renegotiate the deal to their advantage.”

Michael Pillsbury, a Hudson Institute expert who advises the Trump administration, said he believed the statement from China’s Commerce Ministry “may represent wishful thinking on the Chinese side more than a specific agreement.”

Former White House chief strategist Steve Bannon said China has mounted a “sophisticated influence operation” to make tariff rollbacks part of any deal.

Still, there is growing pressure on the Trump administration to reach a concession with China as President Trump faces possible impeachment by the House of Representatives and a 2020 re-election campaign.

There are also signs that the tariffs—paid by U.S. businesses and ultimately passed on to consumers—are becoming a drag on U.S. economic growth.

In September, the last month for which data are available, American importers paid a record $7 billion in duties. Economic growth slowed below 2% in the third quarter after growing almost 3% for most of 2017 and 2018.

Though the unemployment rate has remained low, job growth has stalled in the manufacturing sector this year.

Myron Brilliant, executive vice president and head of international affairs at the U.S. Chamber of Commerce, welcomed reports that tariffs would be phased out.

“We’re giving up tariffs that hurt our economy, that hurt manufacturers and farmers and consumers and retailers,” Mr. Brilliant said.

“In return we’re asking China to make concrete commitments in specific areas—ag purchases, financial services, financial markets—as well as making additional concessions in other areas.”

The U.S. has hit about $360 billion of Chinese imports with tariffs, in four different tranches, and it was unclear Thursday as to how many of these tariffs would be affected or under what timeline.

There were also no details as to whether the U.S. would reduce the tariff rate, or remove tariffs entirely.

Mr. Brilliant said one option would be to unwind the 15% tariffs that were imposed Sept. 1 on about $111 billion in goods, and agree to refrain from moving forward with a tariff increase planned for Dec. 15 that would hit major categories of Chinese consumer goods and electronics.

The removal of tariffs has been one of the recurring sticking points in the negotiations. Beijing has pressed the U.S. to end all the tariffs, describing that as one of its bottom lines when talks fell apart earlier this year.

Washington has discussed removing tariffs as part of a compliance mechanism, under which tariffs would come off gradually if China fulfills its commitments over time under the trade deal.

It was unclear whether what the Chinese officials described could be considered that compliance mechanism.

Chinese officials have typically declined to characterize the amount of progress in the trade talks, but the officials on Thursday depicted the phasing out of tariffs as a hard-won result.

Their statements could be a sign of China’s confidence that it has leverage in closing out the first phase of their deal.

“The Chinese have decided that Trump needs this more than they do, and they’re trying to do what they always do, which is pushing their advantages,” said William Reinsch, a senior adviser at the Center for Strategic & International Studies in Washington.

“They’ve been more aggressive on pushing [for removal of] the tariffs than before, and they’ve pushed pretty hard on that.”

r. Trump has expanded and increased tariffs on Chinese imports to pressure Beijing into complying with U.S. demands, while China has retaliated to each increase with tariffs of its own. Last month, he agreed to cancel plans to boost tariffs on some goods—but the U.S. has yet to lower any tariffs once they have been put in place.

The phase-one deal is widely expected to deter Mr. Trump from imposing new tariffs on Dec. 15 as planned.

The U.S.’s top trade negotiator, Robert Lighthizer, has pushed Beijing to let the U.S. establish enforcement offices as part of the deal. When the U.S. announced in October that the two sides would try to resolve the trade dispute in stages, Mr. Lighthizer said the sides agreed to have a “workable dispute- settlement mechanism.”

The Chinese Commerce Ministry’s Mr. Gao reiterated China’s longtime stance that the U.S. is the instigator of the dispute and should take responsibility in de-escalating tensions: “The trade war started with increasing tariffs and should end in removing all tariffs,” he said.

Nick Marro, a trade analyst at the Economist Intelligence Unit, said Mr. Gao’s statement may reflect growing confidence by China that Mr. Trump is eager for a deal.

“China may pick up on this and start playing hardball, because they know that—at least politically—they have the upper hand,” Mr. Marro said.

In Beijing, people following the talks say it makes sense for Chinese negotiators not to give in to U.S. demands, including that China buy about $50 billion of American farm goods within two years.

“Does China even have this big of a demand?” said Shi Yinhong, international studies professor at Renmin University and an adviser to the State Council, China’s cabinet.

Mr. Shi also expressed skepticism whether negotiators had completed terms for a phase-one deal: U.S. deliberations on rolling back existing tariffs, for example, are probably an effort to extract additional concessions from Beijing, he said.

At a conference in Beijing last weekend, several Chinese speakers, including former government officials, said they expect disputes of different types between the U.S. and China to stretch on for decades, whatever the prospects for a near-term agreement.

“The frictions are not just about trade,” said Liu Shijin, deputy director of economic affairs at China’s legislative body. “A lot of areas [for disagreement] haven’t even started yet.” - WSJ

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