Over the Weekend, A 180 (Anniversary Edition)
In this episode, the Trade Guys and Andrew celebrate the first anniversary of the podcast. They discuss the status of the US-China talks and what will happen when negotiators from both countries are scheduled to meet later in the week.
What We’re Reading
“Trump Advisers Accuse China of Reneging on Trade Commitments”
“President Trump’s top economic advisers on Monday accused China of reneging on previous commitments to resolve a monthslong trade war and said Mr. Trump was prepared to prolong the standoff to force more significant concessions from Beijing.”
“Mr. Trump, angry that China is retreating from its commitments just as the sides appeared to be nearing a deal and confident the American economy can handle a continuation of the trade war, will increase tariffs on $200 billion worth of Chinese goods on Friday morning, his top advisers said.”
“’We’re moving backwards instead of forwards, and in the president’s view that’s not acceptable,’ his top trade adviser, Robert Lighthizer, told reporters on Monday. ‘Over the last week or so, we have seen an erosion in commitments by China.’”
Why it matters: Trade talks between China and the United States appeared to be heading into the endgame, until President Trump’s top trade advisers told him over the weekend that China was backtracking on commitments made in the negotiations. That led the president to announce a tariff increase and threaten to hit all uncovered Chinese goods with tariffs. The move is likely to upset a negotiating environment that for months had been relatively stable. Whether the president successfully gains leverage from the new tariffs to close a deal or merely capsizes the negotiations remains to be seen.
Key questions: What exactly happened over the weekend to lead the president to announce the new tariffs? Why did China backtrack on its commitments this late in the talks? How will the tariff announcement impact the negotiations, particularly given the fact that a Chinese delegation is coming to Washington this week? Will President Trump’s threat give him more leverage in the talks? If China did backtrack on its commitments, is the president justified in imposing more tariffs? What other options does the president have to punish China for backtracking?
“Tariff Threats Pose Fresh Challenge for China’s Xi to Keep Talks on Track”
“President Trump’s new tariff threat is putting Chinese leader Xi Jinping in a bind about how to keep trade negotiations on track and shore up China’s economy while not being seen as caving to Washington.”
“Mr. Trump’s weekend tweets surprised Chinese negotiators, led by Vice Premier Liu He, who were aiming to wrap up the trade talks with their U.S. counterparts during a trip to Washington scheduled for this week. Following Mr. Trump’s renewed warning of raising tariffs, China’s leadership on Monday was considering canceling the trip, said a person briefed on the matter. That hews to a line Beijing has maintained throughout the year-old trade battle that it wouldn’t negotiate under threat.”
“At a press briefing on Monday afternoon, Chinese Foreign Ministry spokesman Geng Shuang said China’s trade team was still ‘preparing to travel to the U.S. for consultations.’ He didn’t say when the team would depart or if Mr. Liu would still lead it.”
Why it matters: President Trump’s announcement reverberated in Beijing as well as Washington. The prospect of additional tariffs and a the negotiations falling apart at the 11th hour raises difficult questions for Chinese president Xi Jinping, including how to manage China’s own economy as well as the optics of bowing under pressure from President Trump.
Key questions: What is President Xi’s best play in this situation? Do the new announced and threatened tariffs threaten the Chinese economy? How can President Xi balance the need to ensure the stability of China’s economy while not appearing to cave to President Trump?
“China Battles Against Trump’s Tariff Threat as Liu to Visit U.S.”
“China’s top trade negotiator Liu He will travel to the U.S. this week for high-stakes talks as prospects dimmed for maintaining a fragile truce after President Donald Trump threatened to raise tariffs on Chinese goods starting Friday.”
“Vice Premier Liu will meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, on May 9 and 10, according to a statement Tuesday on the Chinese Ministry of Commerce website. At the same time, China is preparing retaliatory tariffs on U.S. imports should Trump carry out his threat, according to people familiar on the matter.”
“U.S. equity-index futures extended declines as investors weighed potential setbacks in negotiations that both sides had indicated in recent weeks were headed in the right direction. The dollar edged higher as Treasury yields were steady.”
Why it matters: Vice Premier Liu He – China’s top trade negotiator with the United States – will still travel to Washington this week for scheduled talks despite new U.S. tariffs set to come into force Friday, signaling that a deal is still possible. The decision for Liu to still meet with top U.S. officials suggests that China is not yet willing to completely abandon the negotiations, although it remains to be seen if the two sides can close what appears to a widening gap between their respective positions.
Key questions: How positive of a sign is Liu’s decision to come to Washington despite the new tariffs? What are the most likely outcomes for this round of talks? Should China be negotiating under the threat of new tariffs?
“Lagarde Issues New Trade Warning Amid ‘Unfavorable’ Trump Tweets”
“International Monetary Fund Managing Director Christine Lagarde issued a fresh warning about the threat trade tensions pose for the world economy and said it may take time for the U.S. and China to resolve their issues.”
“The comments came two days after tweets by U.S. President Donald Trump warning of new tariffs on China, marking an escalation of hostilities amid talks aimed at brokering a solution between the two nations. The U.S. also accused China of backpedaling on commitments made during the negotiations.”
“’We thought this threat was waning and relations were improving and we were moving toward an agreement,’ Lagarde said in Paris. ‘We hope that is still the case but today rumors, tweets and comments are not very favorable.’”
Why it matters: Just as concerns over the global economy slowing and potentially slipping into a recession were evaporating amid renewed growth from the United States and China, the two economic powerhouses appear to be slipping back into a protracted and more damaging trade war.
Key questions: What type of impact with increasing tariffs from 10 percent to 25 percent on $200 billion worth of imports from China have on the U.S., Chinese, and global economy? What impact will tariffs on the rest of uncovered Chinese goods have on the economy? What will these actions mean for U.S. consumers?
USMCA
“Trump Hails Steel Tariffs in Defiance of GOP Request to End Them”
“Republican senators said they warned President Donald Trump Thursday against imposing tariffs on auto imports and discussed alternatives that would achieve the White House’s goals.”
“Trump followed with a tweet celebrating his current steel tariffs.”
“More than perhaps any other issue, trade is where Trump has broken with Republican free-market orthodoxy. GOP Senators used a Thursday meeting at the White House to voice their economic and political concerns with Trump’s steel and aluminum tariffs, the ongoing trade conflict with China and new tariffs the president has threatened to impose on auto imports.”
“The Republican senators, led by Finance Committee Chairman Chuck Grassley of Iowa, said they emphasized the urgency of approving Trump’s new North American trade deal, known as the USMCA, as well as the importance of removing existing tariffs and avoiding new ones. Grassley said he ‘urged President Trump to work with us get past the steel and aluminum tariffs issue so USMCA can become law.’”
Why it matters: Days after Senate Finance Committee Chairman Chuck Grassley (R-IA) wrote an op-ed stating that USMCA could not pass until the steel and aluminum tariffs on Canada and Mexico were removed President Trump praised the tariffs. Top Republican senators visited the White House in the first week of May to counsel the president against additional tariffs, including on automobiles and China, but the president appeared unphased by the intervention.
Key questions: How dug in are Republican Senators and the president on the steel and aluminum tariffs and the requirement that they be removed from Canada and Mexico before USMCA passes? Why haven’t the tariffs been lifted yet, especially given that they are holding up the president’s signature trade agreement? Why won’t Republican Senators relent and give the president a big win despite the tariffs?
“Democrats threaten to block Trump’s Mexico-Canada trade deal”
“Democratic lawmakers on both sides of the Capitol say the Trump administration has failed to satisfy concerns they’ve raised for months about the new trade deal with Canada and Mexico, threatening to sink President Donald Trump’s top legislative priority.”
“Pressure from the White House for Congress to vote on the deal has been increasing as the time window for a vote closes. But Democrats say there is little appetite among members of their party to move forward until the administration makes changes surrounding enforcement of the replacement deal for NAFTA, among other issues.”
“’I don’t think they have close to enough votes,’ said Sen. Sherrod Brown (D-Ohio), who has led the charge in the Senate in pressing for stronger labor standards and enforcement. ‘They’ve got a lot to do still.’”
“Mexico will not accept more labor enforcement in new NAFTA, top official says”
“A top Mexican official delivered an ultimatum to Democrats on Friday, saying the country will not accept a stronger labor enforcement mechanism in the new North American trade pact and will not support reopening the deal to further negotiation.”
“’We don’t see what more is necessary or possible,’ Jesús Seade, Mexico’s undersecretary for North America, told POLITICO in an interview on Friday, days after Mexican lawmakers passed a landmark labor reform law required by the U.S.-Mexico-Canada Agreement.”
“’The labor provisions in the agreement are very far-reaching. It’s a complete A-through-Z of good labor practices. There is nothing else you may want,’ he added.
Why it matters: On the other side of the aisle, Democrats continue to maintain that USMCA does not contain strong enough enforcement rules when it comes to labor and environmental provisions in the deal. Mexico has shut down the idea of adding a stronger labor enforcement mechanism in the deal, leaving the Administration, Democrats, and Mexico stuck in a stalemate.
Key questions: What is the administration’s path out of the labor conundrum? Is there another way for the administration to get Democratic support for USMCA besides additional labor enforcement rules? Is there a way for the administration to fix the labor enforcement issue without participation from Mexico? Between the issue with steel and aluminum tariffs and Democrats’ complaints over labor, is the window closing for the administration to get USMCA done before the 2020 election?