Experts Skeptical That Trump's Softer Tone on China Will Mean Tariffs Stop Rising
China and trade war watchers were aflutter after President Donald Trump and Chinese President Xi Jinping had a phone call Nov. 1 and both sides sounded upbeat. Trump tweeted that it was "a long and very good conversation," mostly about trade, and that "those discussions are moving along nicely." In China, the readout from Xinhua emphasized how seriously the U.S. it taking its preparation for the in-person meeting later this month in Argentina, and said that Trump said, "it is very important for the heads of state of the United States and China to keep frequent, direct communication.... Trump also said he attaches importance to a good relationship with Xi and is willing to extend, through Xi, his good wishes to the Chinese people."
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
Trump continued the optimism on Nov. 2, telling reporters, "we're getting much closer to doing something" on trade with China, and saying he expects the two countries will make a deal.
But several China experts believe the positive tone is meaningless for predicting whether Section 301 tariffs will be rolled back, or even if escalation will stop after the meeting on the sidelines of the G-20 summit. "A lot of these things are complicated," said Phil Levy, a senior fellow on the global economy at the Chicago Council on Global Affairs. He said in an interview that reforming subsidies to business and technology transfer contracts is not black or white, and where the lines are drawn is "not what you do over drinks at a G-20 meeting."
Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies, said the tweet was unexpected, given how the China rhetoric has become harsher and harsher, and said, "I guess most cynically one would say it was just a ploy to get markets to improve ahead of the election, but there’s a big X factor in this administration, which is they’re fine being inconsistent or fickle on policies."
So while it's pretty likely this was just a blip, and won't portend any change in direction, he said it's plausible that the U.S. will back down in some way before Jan. 1, when 10 percent tariffs on nearly $200 billion in Chinese imports are scheduled to rise to 25 percent. "The president, when he’s on the phone or in person with somebody, tends to be conciliatory. I don't think we should over-read how clearly strategic his thinking was in the context of yesterday," Kennedy said.
Eric Miller, president of Rideau Potomac Strategy Group, agreed that the chatter about the phone call was giving it too much importance. "People are looking for signs that somehow the trade friction is going to pass, and there will be a return to normalcy," he said. "My own view is I don't see a return to normalcy anytime soon."
He said, "I don’t think the Chinese know what to do with President Trump. I think they’re still floundering around in the dark. They’ll put something on the table in Buenos Aires [at the summit], my guess it won’t be sufficient," he said. "Judging from past practice, the Chinese approach is pay as little as possible to take the tension out of the air and make things go back to quote unquote normal."
Levy said he also thinks it's more likely than not that tariffs on the largest tranche rise to 25 percent in January, though the fact that they didn't start out at that level does suggest the administration is "starting to realize the downsides of these policies, which are very large." Still, he said, Vice President Mike Pence's speech about China and other actions make it hard for the administration to walk the trade war back.
"Most of their rhetoric has kind of sounded like they want to vote China off the planet," Levy said. "They’ve given no indication of any kind of viable exit ramp."
But one China hawk is concerned that the tweet and comments are signs that Trump will back down, particularly on the approach of boxing in Chinese chip makers or other tech firms that have stolen technology from U.S. partners. That already happened once after a phone call with Xi, with regard to export controls for telecommunications equipment company ZTE, and the U.S. announced both criminal cases for industrial espionage and a new export control target this week.
Derek Scissors, a China scholar at the American Enterprise Institute, wrote a blog post Nov. 2 that asked "Did Xi Jinping just play President Trump, again?" Scissors wrote that the recent actions were exactly the right approach to punish intellectual property violations.
Chip maker "Fujian Jinhua is not as large or visible as ZTE but it is important to China’s plans to climb the technology ladder, by hook or by crook. It seems to have received IP taken from an American firm, which is behavior the US should punish as severely as possible. ... This would hit Beijing where it hurts, without using tariffs which punish American consumers and companies that have done nothing wrong. But almost immediately there is another conversation between Xi and President Trump," he said, and he fears that Trump will back down because of "a good chat," as he did before.
Levy said reversing the export controls on Fujian Jinhua is entirely possible. While Levy thinks Trump is generally protectionist, and truly believes China has been eating America's economic lunch, he said, Trump still "thinks Xi Jinping is a good friend and it’s nice to do favors for your friends."