China 'Reneging' On Trade Commitments, U.S. Officials Say

May 6, 2019
Originally published on May 6, 2019 9:34 pm

Updated at 10:00 p.m. ET

In a significant escalation of rhetoric, senior Trump administration officials accused Beijing of reneging on commitments it had already made in its on-going trade dispute with China, and they said they plan to increase tariffs on $200 billion in Chinese imports from 10% to 25% starting on Friday.

"Over the course of the last week or so, we have seen an erosion in commitments by China — I would say retreating from specific commitments that had already been made in our judgment," said U.S. Trade Representative Robert Lighthizer at a briefing with reporters Monday afternoon. "That's why the president referred to no re-negotiating in his tweet."

Lighthizer said China's attempts to re-negotiate were "in our view unacceptable. These were substantial and substantive changes and really, I would use the word 'reneging' on prior commitments."

Treasury Secretary Steven Mnuchin said it became particularly clear over the weekend "with some new information that they were trying to go back on language that had been previously negotiated, very clear language that had the potential of changing the deal dramatically."

Mnuchin said President Trump "is determined to re-balance the trade relationship" with China.

Neither Lighthizer nor Mnuchin were willing to detail the specific areas where the Chinese sought changes.

The Treasury secretary said the trade deal was "90 percent complete," but there were still significant issues remaining that trade officials had hoped would be resolved by the end of this week.

They said the Chinese delegation, including Vice Premier Liu He, is still expected to arrive in Washington this week for talks slated for Thursday evening and Friday. At the same time, Lighthizer said he would likely put out notice of the increased tariffs on Tuesday and that they would go into effect on Friday morning.

Earlier on Monday, Trump's latest threat to set higher tariffs on imports from China sent global financial markets tumbling.

Stock prices opened sharply lower in the United States on Monday — with the Dow Jones Industrial Average down more than 450 points — after Trump tweeted a vow Sunday to raise tariffs from 10% to 25% on $200 billion worth of imported Chinese goods as of Friday. The stocks of companies that trade heavily with China were especially hard hit.

The Shanghai composite index plunged 5.6% on Monday.

"The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we're not going to be doing that anymore!" Trump said in a tweet Monday. (The goods trade deficit with China rose to a record $419.2 billion in 2018, but most economists say a deficit doesn't say much about the health of the economy.)

But the stock markets crept higher as the day wore on, a sign that investors may be seeing Trump's threat as a negotiating ploy that he is unlikely to follow through on. By the end of the day, the Dow was down only 66 points, or 0.25%.

Mnuchin said the prospect of stock market reaction was not a factor in the administration's approach. He left open the possibility that the trade talks could get back on track if the Chinese were "prepared to meet the commitments they made to us previously."

China and the United States have been locked in tough talks for months about trade, with the Trump administration demanding that Beijing address intellectual property theft, government business subsidies and currency manipulation.

Still, Trump's tweets have "blindsided" Beijing officials, who were hoping the talks would lead to an elimination of tariffs, said Eswar Prasad, a senior professor of trade policy at Cornell University.

"But now it looks like the negotiations, at least on the U.S. side, will be about not imposing additional tariffs. So that changes the complexion of the negotiations quite significantly," Prasad said.

The Chinese still have a strong incentive to strike a deal because their economy has been slowing, he said.

"The complication right now is that the Chinese cannot afford domestically to be seen as cravenly giving in to U.S. demands, which in the Chinese narrative are multiplying by the day," Prasad added.

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ARI SHAPIRO, HOST:

President Trump's threat to raise tariffs came just days before top Chinese negotiators are due in Washington for trade talks. As of now, those talks are scheduled to resume on Thursday. And to tell us more about the state of play, NPR's Jim Zarroli joins us now. Hi, Jim.

JIM ZARROLI, BYLINE: Hello, Ari.

SHAPIRO: The U.S. and China have been negotiating for months about trade, and things seemed to be going pretty well up until this weekend. What happened?

ZARROLI: Yeah. It seemed like the two countries were really moving toward a deal, which would be just an enormous breakthrough if it happened. There were still some outstanding issues. I mean, the United States wants China to address intellectual property theft and stop subsidizing its businesses. So these are real issues, real hurdles. But I think the feeling until today was that both sides really want a deal. And people like Treasury Secretary Steve Mnuchin and Larry Kudlow, who's the director of the National Economic Council, were out making a lot of very positive statements about the talks. So I think the financial markets had been sort of lulled into thinking that a deal was in the works. And then all of a sudden, everything just changed, that - things just seemed to have collapsed.

SHAPIRO: So this goes back to the question, what happened? I mean, what triggered President Trump's tweets?

ZARROLI: Well, we don't know for sure, but the the president's trade representative, Robert Lighthizer, said late this afternoon that China had backtracked on some of the promises it made. He said, "we felt we were on track to get somewhere. Over the course of the last week or so, we've seen an erosion in commitments by China. I would say retreating from commitments that have already been made in our judgment," unquote. He said, we're moving backwards instead of forwards, and that is not acceptable to the president. And then the treasury secretary, Steve Mnuchin, said something similar. He said, the talks had gone substantially backward. But they did not provide any real details about what the disagreement is right now.

SHAPIRO: OK, so tell us about the impact of this. The stock market opened a lot lower this morning after the president's comments. It came back somewhat after that. What's going on?

ZARROLI: Yeah. I think Trump's tweets really scared people. I mean, he's talking about raising tariffs from 10 to 25% on $200 billion in imports and doing it as early as Friday. So a lot of companies that do a great deal of business in China like Apple and Qualcomm - they saw their stocks fall. And then today Robert Lighthizer, you know, said for sure that will happen one minute after midnight on Friday. So that will be a really big deal of it actually happens.

But I think a lot of people in the stock market today were asking, you know, how serious is Trump? Is this just a negotiating tactic? Is he trying to, you know, squeeze China a little more? The United States has gotten some good economic news lately like Friday's unemployment report. And, you know, maybe Trump feels like he can play hardball, that the U.S. economy can withstand a little bit of a trade war. So I think people today were trying to figure out what that meant.

And then after the markets closed, Lighthizer came out and made these comments about the tariffs. And you saw the stock futures fall again. So we are in a very volatile situation, really a high-stakes environment that's going to affect a lot of businesses. And it's a pretty safe bet that tomorrow the markets are going to open lower.

SHAPIRO: And then on Thursday these talks between the U.S. and China are scheduled to resume. What do you expect to happen?

ZARROLI: Well, the trip is still on. You know, it was a question of who will be part of the delegation. China could try to send a message by downgrading the delegation. I talked to Eswar Prasad of the Brookings Institution today, and he said the Chinese government really doesn't want to be seen as weak.

ESWAR PRASAD: The complication right now is that the Chinese cannot afford domestically to be seen as cravenly giving in to U.S. demands, which in the Chinese narrative are multiplying by the day.

ZARROLI: At the same time, China wants to get a deal. Its economy is slowing. A trade war with the United States would really aggravate the problems it faces.

SHAPIRO: That's NPR's Jim Zarroli. Thank you.

ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.