Washington Insider -- Tuesday

Awaiting New US, China Trade Talks

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Trump Trade Team to China Set

The White House announced that President Donald Trump finalized the team that will head to China this week for talks between the two countries starting Thursday May 3.

The team includes U.S. Ambassador to China Terry Branstad, Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, US Trade Representative Robert Lighthizer, Assistant to the President for Economic Policy Larry Kudlow, Assistant to the President for Trade and Manufacturing Policy Peter Navarro and Deputy Assistant to the President for International Economic Affairs Everett Eissenstat.

Immediately after the announcement was made, there was some speculation that Navarro, and ardent critic of China, was not part of the team, but the official statement from the White House indicated otherwise. Some, however, were surprised at the inclusion of Ross on the list.

Trump Admits Farmers May Feel Some Pain via His Policies

President Donald Trump used a campaign-style stop in Michigan over the weekend to delve into several topics, including on agriculture and trade.

On trade, Trump talked of reforming U.S. trade policy and acknowledged that U.S. farmers will experience "a little pain for a little while.” However, he stressed that farmers would end up doing even better once the NAFTA 2.0 negotiations are completed.

Trump also did not waive the potential for pulling out of the trade deal as he has done on several occasions over the past several months.

Trump told the Michigan crowd he supports more ag guestworker labor, and offered support for more guestworkers to come to the U.S. to fill labor needs for U.S. agriculture "to help you on the farms -- and then they go out."

Overall, Trump proclaimed for farmers, "OK, it’s going to get good, and we’re going to let your guestworkers come in, because we’re going to have strong borders. But we have to have your workers come in.”

Washington Insider: Awaiting New US, China Trade Talks

There is increasing angst in trade circles, especially among U.S. trading partners regarding whether the United States will extend the temporary exceptions to its tariff increases given earlier and which are set to expire today. In addition, the New York Times is reporting from Beijing that “China will refuse to discuss President Trump’s two toughest trade demands when American negotiators arrive in Beijing this week.”

The government is publicly calling for flexibility on both sides. But senior Beijing officials told NYT that they do not plan to discuss the Trump administration’s two biggest demands: a mandatory $100 billion cut in America’s $375 billion annual trade deficit with China and curbs on Beijing’s $300 billion plan to bankroll the country’s industrial upgrade into advanced technologies such as artificial intelligence, semiconductors, electric cars and commercial aircraft.

NYT says the reason is that Beijing feels its economy has become big enough and resilient enough to stand up to the United States.

The report says that a half-dozen senior Chinese officials and two dozen influential advisers laid out the Chinese government’s position in detail during a three-day seminar that ended here late Monday morning. A handful of foreign writers were invited from around the world to make sure China’s stance is known overseas.

It is far from clear what will happen when the two sides actually sit down this week, but the report says that Chinese and American “positions are so far apart that China’s leaders are skeptical a deal will be possible at the end of this week.”

The Chinese government says it is frustrated with Trump’s threats to impose tariffs on $150 billion in Chinese goods and dismayed by suggestions in the West that China has a weak bargaining position. Chinese officials believe the country’s one-party political system and President Xi Jinping’s enduring grip on power — particularly after the repeal of presidential term limits in March — mean that China can outlast the United States and Trump in any trade quarrel.

But China is expected to insist that the parameters of any deal be limited and that the tariff threat be removed before a final deal can be struck.

China’s position is that the bilateral trade imbalance arises from differences in savings rates. Households in China save roughly two-fifths of their incomes. Americans, on average, save almost nothing. So money from China tends to flow to the United States, buying factories, technology companies, real estate and more and Americans in turn spend much of that money to buy goods from China. Many economists in the United States, including some at the Treasury, share that view.

By contrast, many trade lawyers, lawmakers on both sides of the aisle and Mr. Trump contend that the trade deficit stems to a large extent from unfair trade practices, including cheap loans by state-controlled banks to exporters.

China is ready to discuss shrinking the $375 billion annual trade deficit, the Times says. But it wants to do so by buying more high-tech American goods, which Washington has long blocked because of concerns that they may have military value.

China says it is not ready to discuss a mandatory $100 billion reduction in the annual deficit, as the administration has suggested.

A senior Chinese government official said that Beijing is unwilling to negotiate with the United States on any curbs on China’s industrial policy, which includes large-scale government assistance to favored industries in advanced-technology manufacturing.

Other participants in the seminar said that the United States had misunderstood China’s industrial policy and they expressed hope that it might be possible to resolve bilateral differences by explaining the program better and making very small tweaks to it — a stance that may not appease the Trump administration.

The Chinese government is not simply throwing resources to favored industries like robotics, artificial intelligence, semiconductors and aircraft manufacturing. It is engaged instead, they contended, in a carefully thought-out program that measures potential profits for each dollar of investment.

One subject was repeatedly and conspicuously avoided by all officials throughout the seminar, even when advisers occasionally speculated about it: whether China might someday try to link trade disputes to national security issues.

China has been deeply involved in international pressure on North Korea to give up its nuclear weapons and ballistic missiles, an issue of high importance to the Trump administration. Beijing also wants to someday assert control of Taiwan, a self-governing democracy that Beijing regards as a renegade territory.

In some respects, the hard stance struck by Chinese officials reflects a hardening of public attitudes in China, the Times says. Many in China say current U.S. policies are designed to remind the government that sizable sectors still rely on American-made goods. Much of the new 2025 policy is aimed at reducing that dependence.

So, we will see what happens. Clearly, the threatened escalation of trade restrictions has strong negative potential impacts for producers and the clear task for Secretary Perdue is to present to the administration ways that uniformly beneficial reductions China’s unfair trade practices can be achieved without impeding trade. Finding such paths will be a serious challenge but will be crucial for both economies, Washington Insider believes.

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