Trump Sends To-Do List to China on Trade

Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter

Hot and heavy breathing can be heard behind the scenes.

Negotiations – led on the US side by Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer, and on the Chinese side by Liu He, the new premier and President Xi Jinping’s top economic adviser – about how to address the gigantic China-US trade imbalance have quietly begun, the infamous “people with knowledge of the matter” told the Wall Street Journal.

On Saturday, Mnuchin called Liu, which was confirmed by the Treasury Department. A spokesman said that they “also discussed the trade deficit between our two countries and committed to continuing the dialogue to find a mutually agreeable way to reduce it.”

Now Mnuchin is considering a trip to Beijing to pursue the negotiations, one of these people told the Wall Street Journal.

And last week, according to these people, Mnuchin and Lighthizer sent Liu a to-do list on trade with specific items the White House wants the China to undertake, including:

  • A reduction of the 25% tariffs that China imposes on US-made cars
  • Increased purchases by China of US-made semiconductors. China would need to shift these purchases from Japanese and South Korean manufacturers, which aren’t going to be happy
  • Reduce subsidies to state-owned enterprises
  • Provide more regulatory transparency
  • Ease restrictions on US companies in China, particularly requirements that they operate as joint ventures in which the US company’s ownership may be limited to 51%
  • Giving US financial firms greater access to the Chinese market.

Clearly, in leaking these negotiations and the existence of this to-do list to the financial press, the White House is hoping to calm the markets, because the last thing it wants is to preside over a stock market plunge, though the stock market has all the best reasons to swoon, and the US-China trade situation isn’t needed to accomplish that.

President Trump himself had more than hinted at these negotiations last Thursday during his announcement of tariffs on up to $60 billion in imports and various other restrictions. But by now, it’s hard to distinguish, apparently, what to take seriously and what to let bounce off, and people were sidetracked by the gravity of the rest of what he’d said in the same paragraph:

“So we’ve spoken to China and we’re in the midst of a very large negotiation. We’ll see where it takes us. But in the meantime, we are sending a Section 301 action. I’ll be signing it right here, right now. I’d like to ask Bob Lighthizer to say a few words about the 301 and where we are in that negotiation.”

This Section 301 of the US Trade Act of 1974 hasn’t been used since 1995, when the WTO began sorting out trade disputes. But the US Trade Representative announced in August last year that it had “formally initiated” an investigation of China under Section 301, which “will seek to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”

“The word that I want to use is ‘reciprocal,’” Trump added on Thursday. He used the example of China imposing 25% tariffs on US-made cars, while the US imposes only a 2.5% tariff on foreign-made cars – though he didn’t mention that pickups are protected in the US by 25% tariffs, and that’s why automakers that make them in the US have such obscene profit margins on pickups.

Mnuchin chimed in on Fox News Sunday. “We’re working on a pathway to see if we can reach an agreement as to what fair trade is for them,” Any deal, he said, would include China opening its markets further to US goods, lowering its tariffs, and ending its practice of pressuring US companies that want to do business in China to transfer their technology to the required Chinese joint-venture partners.

During the talks, according to these people with knowledge of the matter, Liu said he was grateful to hear specifics but he didn’t make any commitments. Whatever will come of this, one thing is for sure, Trump rattled some nerves and got China’s attention.

As one of the retaliatory measures, China issued a vague threat that it might cut back on purchases of US Treasuries. Read…  China’s Empty Threat of Dumping its US Treasuries