China Plans Up to $200 Billion in Trade Concessions, but Skepticism Abounds

A worker at a factory in Huaibei, China. Beijing is preparing to offer Washington a package of trade concessions, but economists caution that the promises would be largely illusory.

WASHINGTON — President 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 American 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 Mr. Trump to claim victory in his campaign to reduce the trade deficit with China and rebalance America’s 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 American 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 American suppliers, and relaxing export controls that prevent American companies from selling sensitive technology to China.

For Mr. Trump, his motive may be diplomatic as much as economic: He needs China to use its influence with Mr. Kim, who has suddenly thrown a cloud over his planned meeting with Mr. Trump in Singapore next month.

The president said Thursday that North Korea’s threat to cancel the summit meeting came after Mr. 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,” Mr. Trump said to reporters in the Cabinet Room, referring to the Chinese president. “We’ll see what happens.”

Mr. Trump insisted he would drive a hard bargain with China, noting that it had become “very spoiled” in trade negotiations with previous American 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.



How China Became Trump’s Trade Nemesis

China’s explosive rise was a shock to the global trading system. For decades, Western economies like the United States have struggled with the growth of this economic powerhouse.

“If you look at what’s happening with trade in China, it hasn’t been fair for many, many years.” When President Trump rails against China, he says things like, “Our country is being taken advantage of,” or, “We lost years ago by presidents and others allowing this to happen.” He’s probably referring to the past four decades, when China has grown faster than any major economy in history and gone from a poor, developing country to an economic powerhouse that is challenging America’s spot at the top of the international food chain. “Its emergence as a global power was so sharp and so extreme, faster than the world can handle, in some ways faster than China can handle.” The U.S. and other Western nations kick-started much of China’s rise by opening up trade. What they haven’t figured out is how to get this fundamentally different economic system to play by free market rules. A pivotal moment came in 2001 after 15 years of negotiations. China joined the World Trade Organization, which sets the rules for free and fair trade between member countries. “All of the countries that were in the club at the time put enormous demands on China for what they needed to do.” The Chinese committed to sharply lower tariffs and reduced some of the government’s role in how business gets done. But they argued then, as they still do now, that China is a developing country and so should be held to less stringent free trade standards. The hope was that these first steps would lead to even more sweeping changes. “Why did we assume that? The experience of communism was through the lens of the Soviet Union and its satellite states, which was ultimately not a success. And so the presumption was, China’s going to want to become like us, more market oriented.” “After China joined the W.T.O. in 2001, you saw this enormous surge of Chinese exports to everywhere in the world, and to the United States in particular.” “They were kind of an elephant hiding behind mice with respect to other countries in global trade negotiations at the time.” The U.S. and other countries complained that China was not opening its markets enough, and keeping the value of its currency artificially low to make Chinese exports more attractive. “China has been making great strides using tools that are really not acceptable under the global trade system.” China has continued to operate as a centrally planned economy. The government owns, influences or subsidizes major industries, giving them an artificial competitive edge. There are heavy restrictions on foreign investment, and foreign companies are pressured to share their technologies. “China has become more market oriented, but dating back to probably 2007, 2008, I think it was recognized that China wasn’t on the path to become more like us. And so then countries began to think about, well, what do we do instead?” “Some view the rise of Asia-Pacific with suspicion and fear. America doesn’t.” Enter the Trans-Pacific Partnership, initiated by Bush, signed by Obama. “When implemented, It won’t just boost trade and support jobs in our 12 countries. It will help set stronger rules for trade across the Asia-Pacific.” Put less politely, It was also supposed to be a bulwark to China’s growing economic power. “The idea was that China would want to join this great trading pact, and so they would have this incentive to reform their economy.” “This is the one that President Trump ripped up on his third day in office.” “The first one is withdrawal of the United States from the Trans-Pacific Partnership.” “I had seen the erosion of popular and congressional support for trade for many years. But I’d never seen anything like Donald Trump.” “Our founding fathers understood trade much better than our current politicians, believe me.” Trade is generally accepted by economists as win-win for countries on the whole. But Trump says that China is winning and the U.S. is losing. “He and people in his administration argue that past approaches to dealing with China haven’t worked. It’s not actually that profitable to negotiate with them. We need to focus on this much bigger trade measure, and then we can really hit them with a very aggressive, forceful action.” “He seems intent on generating a moment of crisis.” “We put a $50 billion tariff on, then we put a $100 billion tariff on. And you know at a certain point, they run out of bullets.” But dynamics have changed. Today, China sees its economy as strong enough to withstand almost anything the U.S. can throw at it.

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China’s explosive rise was a shock to the global trading system. For decades, Western economies like the United States have struggled with the growth of this economic powerhouse.CreditCredit...Johannes Eisele/Agence France-Presse — Getty Images

On Thursday, Mr. Trump met privately in the Oval Office with Liu He, China’s vice premier and the top economic adviser to Mr. Xi, who is expected to present the trade deal to the president’s advisers on Friday.

China sent mixed signals on Friday. At a daily news briefing, China’s Foreign Ministry denied it had offered to reduce its trade surplus with the United States by $200 billion. At the same time, it dropped what was widely believed to be a politically motivated inquiry into sorghum imports from the United States, the latest sign of a potentially softening stance.

Mr. 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 Mr. 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 Mr. Mnuchin cut Mr. Navarro out of another meeting with Mr. Liu. Treasury officials said Mr. 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.

Mr. Mnuchin, a former Goldman Sachs banker, is eager to broker a deal that would defuse a trade war with China, officials said. Mr. 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 Mr. 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 of the annual American 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 American 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,” Mr. Bown said.

That is because the United States economy is already 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 United States trade deficit with China but leaving the United States trade deficit with the entire world unchanged.

And several categories of military-related equipment that 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 American-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.

As part of Mr. Trump’s trade offensive, the Treasury Department has been working on new guidelines that would restrict Chinese investment in the United States, a move that officials say is needed to better police potential security threats. The Treasury is scheduled to deliver this plan to the White House by early next week, but that could be delayed or changed based on the outcome of trade talks this week.

Congress, meanwhile, is moving ahead with legislation that would expand national security checks of Chinese investment in the United States and American partnerships with Chinese companies abroad.

That legislation, led by Senator John Cornyn of Texas and Representative Robert Pittenger of North Carolina, both Republicans, could move toward a vote as early as this summer.

Trade skeptics inside and outside the administration have cautioned against agreeing to a hasty deal with China, saying it has repeatedly reneged on promises it made to past administrations.

The administration, for example, recently claimed a win in persuading China to restart imports of American beef after a nearly 14-year ban. But China actually announced it had lifted the ban in September 2016 under the Obama administration; it simply did not start accepting beef shipments until this year.

Skeptics say China has made similar unfulfilled promises to other administrations on issues ranging from reducing overcapacity in steel production to opening up its financial markets.

The president said he was not sure what to make of Mr. Kim’s threat to cancel their meeting. But he went out of his way to address one of Mr. Kim’s prime objections: that the United States viewed Libya as a template for ridding North Korea of its nuclear arsenal. Mr. Trump said the idea, floated by his new national security adviser, John R. Bolton, was a nonstarter.

“In Libya, we decimated that country,” he said. “There was no deal to keep Qaddafi. The Libyan model that was mentioned was a much different deal. This would be with Kim Jong-un — something where he’d be there, he’d be in his country. He’d be running his country. His country would be very rich.”

Mr. Trump appeared to have confused the 2003 deal under which Libya relinquished its nuclear program with the NATO-led intervention in 2011 that ended after the killing of Col. Muammar el-Qaddafi.

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. On Thursday, he acknowledged that China was now the one using North Korea as leverage.

“President Xi could be influencing Kim Jong-un,” Mr. Trump said. “If you remember, a few weeks ago, all of a sudden, out of nowhere, Kim Jong-un went to China to say hello again a second time to President Xi.”

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