With talks underway over a narrow agreement to defuse the escalating trade war, China is stepping up its demands for relief from existing U.S. tariffs on about $360 billion in Chinese imports.
President Donald Trump, the self-proclaimed "Tariff Man," and his top trade advisers have long seen the tariffs he has imposed on China as a way to create leverage over officials in Beijing who have either outsmarted or out-waited previous U.S. administrations. Tariffs were the game changer.
But as the two sides hammer out a relatively narrow "phase one" deal that Trump announced last month and that he and Chinese President Xi Jinping planned to sign at a now-canceled Asia-Pacific summit in Chile next week, Chinese negotiators have been pushing hard for the rollback of more U.S. tariffs.
People familiar with the deliberations say Beijing has asked the Trump administration to pledge not only to withdraw threats of new tariffs but to eliminate duties on about $110 billion in goods imposed in September. Negotiators are also discussing lowering the 25% duty on about $250 billion that Trump imposed last year, the people said. On the U.S. side, people say it's not clear whether Trump, who will have the final say, will be willing to cut any duties.
From the Chinese perspective, the argument is that if they are going to remove one big point of leverage and resume purchases of American farm goods and make new commitments to crack down on intellectual property theft -- the key elements of the interim deal -- then they want to see equivalent moves to remove tariffs by the U.S. rather than the simple lifting of the threat of future duties.
That was the case reiterated by Chinese state media Tuesday.
Trump announced on Oct. 11 that he had reached a verbal agreement with China on an interim pact that the two sides would sign.
The two sides intended to sign that deal at a summit of global leaders in Santiago, Chile, in mid-November, but last week, Chile canceled the summit because of domestic protests.
They are now searching for another location for a signing ceremony. Trump has floated Iowa as the site, likely because of China's planned purchases of American farm products.
"First, we'll see if we get the deal," Trump told reporters Saturday. "And if we get the deal, the meeting place will come very easily. It'll be someplace in the U.S."
In a possible step toward making the deal more palatable to Trump, Chinese and American law-enforcement officials on Thursday plan to highlight joint efforts to crack down on fentanyl smuggling, addressing an opioid epidemic that Trump has asked Xi to help alleviate as part of the trade talks.
"The event doesn't matter, only results in the U.S. and the fact that fentanyl basically can't be made without China matter," said Derek Scissors, China expert at the American Enterprise Institute.
Tariffs have been one of the primary weapons in Trump's arsenal to redirect manufacturing supply chains out of China, slow that country's rise as a global economic power and pressure Communist Party leaders into making more fundamental changes to their state-led industrial policy.
Some of Trump's aides are worried, as are many businesses, about the impact of the tariffs on the U.S. economy.
Trade data out Tuesday for September showed that tariffs have hurt commerce between the world's two largest economies. U.S. imports from China fell 4.9% from the previous month to the lowest in more than three years, while U.S. exports to China dropped 10%, to a five-month low, according to the Commerce Department data released in Washington.
There are also political risks for Trump in acceding to China's tariff demands. By agreeing to lift the duties, Trump -- who seems increasingly eager to sign a deal with Xi on U.S. turf -- would make himself vulnerable to domestic critics from both major parties. Businesses have also begun to grumble about whether the phase-one agreement will lead to any more, and the fact that it won't address many of their structural complaints about China.
The tariffs are also seen as an important enforcement tool by people inside the administration and some more-traditional pro-free-trade Republicans, such as Sen. Charles Grassley, R-Iowa, who has said any deal is only worth the paper it's written on if China actually follows through on its promises.
U.S. Trade Representative Robert Lighthizer and other officials have consistently argued that the duties on $250 billion are a way of ensuring that China lives up to its commitments and should be in place for the long term.
China has also previously demanded that Trump not go forward with threatened duties on roughly $160 billion in imports, scheduled for Dec. 15, that would hit consumer favorites such as smartphones and laptops.
Taoran Notes, a blog affiliated with Chinese state-run Economic Daily, on Saturday wrote that canceling all tariffs is one of three main concerns that must be resolved. "Removing all the additional tariffs is a core concern that has not changed and will never change; even if there is a first-phase deal, this core concern should be reflected."
Commerce Secretary Wilbur Ross told Bloomberg Television on Sunday that the two sides are on track to sign an agreement this month but also didn't rule out that the timeline could slip by a few weeks. National security adviser Robert O'Brien said he was "cautiously optimistic" on the deal coming together.
"We're relatively close to an agreement," O'Brien told reporters in Bangkok on Monday.
So far this year, the U.S. trade deficit with China is 12.8% lower than the same period a year ago although it remains the largest imbalance America runs with any country, the Commerce Department said.
In addition to sparring with China, Trump has imposed import taxes on foreign steel and aluminum and is threatening to tax imported autos. Trump views America's persistent trade deficits as a sign of economic weakness and the result of unfair trade agreements, which he says have resulted in the loss of millions of American manufacturing jobs.
The U.S. global trade deficit fell in September to the lowest level in five months as imports dropped more sharply than exports and America ran a rare surplus in petroleum.
The Commerce Department said the September gap between what America buys from abroad and what it sells shrank by 4.7% to $52.5 billion. That was down from the August deficit of $55 billion and was the smallest imbalance since April.
Economists said they expect the trade deficit to be a drag on growth in the current October-December quarter as the continued weakness of the global economy further depresses demand for American exports.
"It's hard to see anything other than further weakness in exports over the coming months," said Andrew Hunter, senior U.S. economist at Capital Economics.
Mainstream economists say the trade gap is the product of economic forces that don't respond much to changes in trade policy such as a strong dollar, which makes U.S. goods more expensive on overseas markets, and the fact that Americans consume more than they produce with imports filling the gap.
In September, the United States recorded a $71.7 billion deficit in the trade of goods such as cars and appliances. But it ran a $19.3 billion surplus in the trade of services such as banking and education.
The September trade report also showed that the U.S. ran the first surplus in petroleum in more than four decades, according to government records that go back to 1978.
The small $252 million surplus reflected the fact that the United States exported $15 billion in petroleum products in September while importing $14.7 billion. U.S. petroleum exports have been growing in recent years, reflecting a boom in new production methods such as fracking.
Information for this article was contributed by Jenny Leonard and Shawn Donnan of Bloomberg News; by Ana Swanson of The New York Times; and by Martin Crutsinger of The Associated Press.
A Section on 11/06/2019