WASHINGTON — In the middle of his crowded dinner in Buenos Aires with President Xi Jinping of China, President Trump leaned across the table, pointed to Robert Lighthizer, the United States trade representative whose skepticism of China runs deep, and declared, “That’s my negotiator!”
He then turned to Peter Navarro, his even more hawkish trade adviser, adding, “And that’s my tough guy!” according to aides with knowledge of the exchange.
Now, with talks between China and the United States set to begin this week in Beijing, Mr. Lighthizer, aided by Mr. Navarro, faces the assignment of a lifetime: redefining the trade relationship between the world’s two largest economies by Mr. Trump’s March 2 deadline to reach an agreement.
And he must do it in a way that tilts the balance of power toward the United States. His approach will have significant ramifications for American companies, workers and consumers whose fortunes, whether Mr. Trump likes it or not, are increasingly tied to China.
First, however, Mr. Lighthizer will need to keep a mercurial president from wavering in the face of queasy financial markets, which have suffered their steepest annual decline since 2008. Despite his declaration that trade wars are “easy to win” and his recent boast that he is a “Tariff Man,” Mr. Trump is increasingly eager to reach a deal that will help calm the markets, which he views as a political electrocardiogram of his presidency.
Mr. Trump has repeatedly told his advisers that Mr. Xi is someone with whom he can cut a big deal, according to people who have spoken with the president. On Saturday, Mr. Trump called Mr. Xi to discuss the status of talks, tweeting afterward that good progress was being made. “Deal is moving along very well,” Mr. Trump said.
The administration has tried to force China to change its ways with stiff tariffs on $250 billion worth of Chinese products, restrictions on Chinese investment in the United States and threats of additional levies on another $267 billion worth of goods. China has responded with its own tit-for-tat tariffs on American goods. But over a steak dinner during the Group of 20 summit meeting in Argentina, Mr. Xi and Mr. Trump agreed to a 90-day truce and to work toward an agreement that Mr. Trump said could lead to “one of the largest deals ever made.”
Mr. Lighthizer — whose top deputy will meet with Chinese officials this week ahead of more high-level talks in February — has played down any differences with Mr. Trump and views his role as ultimately executing the directive of his boss. But the trade representative, who declined to be interviewed, has told friends and associates that he is intent on preventing the president from being talked into accepting “empty promises” like temporary increases in soybean or beef purchases.
Mr. Lighthizer, 71, is pushing for substantive changes, such as forcing China to end its practice of requiring American companies to hand over valuable technology as a condition of doing business there. But after 40 years of dealing with China and watching it dangle promises that do not materialize, Mr. Lighthizer remains deeply skeptical of Beijing and has warned Mr. Trump that the United States may need to exert more pressure through additional tariffs in order to win true concessions.
When Mr. Lighthizer senses that anyone — even Mr. Trump — might be going a little soft on China, he opens a paper-clipped manila folder he totes around and brandishes a single-page, easy-reading chart that lists decades of failed trade negotiations with Beijing, according to administration officials.
“Bob’s attitude toward China is very simple. He wants them to surrender,” said William A. Reinsch, a former federal trade official who met him three decades ago when Mr. Lighthizer was a young aide for former Senator Bob Dole of Kansas. “His negotiating strategy is simple too. He basically gives them a list of things he wants them to do and says, ‘Fix it now.’”
Mr. Trump’s selection of Mr. Lighthizer last month to lead the talks initially spooked markets, which viewed the China skeptic’s appointment as an ominous sign. It also annoyed Chinese officials, who had been talking with the Treasury secretary, Steven Mnuchin, a more moderate voice on trade and the primary point of contact for Liu He, China’s top trade negotiator. Mr. Mnuchin has urged the president to avoid a protracted trade war, even if that entails reaching an interim agreement that leaves some issues unresolved.
Mr. Mnuchin, who attended the G-20 dinner, helped Mr. Trump craft an upbeat assessment declaring the Buenos Aires meeting “highly successful” in the presidential limousine back to the airport, according to a senior administration official.
The disparate views among Mr. Trump’s top trade advisers have prompted sparring — both publicly and behind the scenes.
During an Oval Office meeting with the trade team the fall of 2017, Mr. Lighthizer accused Mr. Mnuchin and Gary D. Cohn, the former National Economic Council director, of bad-mouthing him to free-trade Republican senators.
The argument grew so heated that the White House chief of staff, John F. Kelly, quickly pulled the combatants into the nearby Roosevelt Room and away from the president, where the argument raged on for a few more minutes, according to two witnesses.
Emily Davis, a spokeswoman for the United States trade representative, disputed the account.
Mr. Lighthizer has since worked to increase his own face time with Mr. Trump. He has joked to colleagues that he has more influence with Mr. Trump during winter months because he is able to hitch a ride on Air Force One during the president’s flights down to Mar-a-Lago, which is several miles from Mr. Lighthizer’s own $2.3 million waterfront condo in Palm Beach, Fla.
He used that access to argue to Mr. Trump that the United States has never had more leverage to extract structural reforms on intellectual property, forced transfer of technology from American companies and cybercrime. But while Mr. Trump has jumped at the chance to claim victory in changing China’s ways, experts say that what Mr. Lighthizer is demanding would require significant shifts in how Beijing’s central government and its manufacturing sector coordinate their activities, and that might simply not be possible in the short term.
“Good luck with that,” Mr. Scissors said.
Those who know Mr. Lighthizer say he will try to force concessions through a combination of pressure tactics, like tariffs, and public condemnation. Mr. Lighthizer — who described his own negotiating style as “knowing where the leverage is” during a 1984 interview — typically presents few specific demands during initial talks while publicly bashing efforts by the other side.
He used that approach during recent talks with Canada and Mexico to revise the North American Free Trade Agreement, criticizing foreign counterparts as intransigent and characterizing complaints by American businesses as pure greed.
Mr. Lighthizer’s unsparing view of China comes, in part, from his childhood in Ashtabula, Ohio, an industrial and shipping town on the Great Lakes hit by the offshoring of steel and chemical production. For much of his career, Mr. Lighthizer was a lonely protectionist voice in a Republican Party dominated by free traders, alternating between jobs in government and a lucrative private law career representing large American corporations like United States Steel in trade cases against China.
Mr. Lighthizer found his way into Mr. Trump’s orbit through his work in the steel industry, where he gained prominence by filing lawsuits accusing Japan and China of dumping metals into the United States, in violation of trade laws. In 2011, Mr. Lighthizer caught Mr. Trump’s eye with an opinion piece in The Washington Times, in which he defended Mr. Trump’s approach to China as consistent with conservative ideology and compared the future president to Republican icons like Ronald Reagan.
Taciturn in public and self-deprecating in private, Mr. Lighthizer sees himself as a serious player on the world stage: Two recent guests to Mr. Lighthizer’s Georgetown townhouse were greeted by the stern visage of their host staring down at them from an oil portrait on the wall.
The trade adviser is guarded around Mr. Trump, often waiting until the end of meetings to make his points and quietly nudging the president away from actions he views as counterproductive, current and former officials said. That was the case in mid-2017 when he cautioned the president against withdrawing unilaterally from the World Trade Organization, adding for emphasis, “And I hate the W.T.O. as much as anybody.”
He does not always get his way. In the wake of a new trade agreement with Mexico and Canada this fall, Mr. Lighthizer urged Mr. Trump to consider easing steel and aluminum tariffs on those countries and replacing them with less burdensome quotas. Mr. Trump rejected his plan, according to negotiators from all three countries.
A poker-faced Mr. Lighthizer broke the news to his Mexican and Canadian counterparts by declaring the proposal was inoperative, one of the officials said.
The president also ignored Mr. Lighthizer’s advice in early December when he announced that he intended to begin the six-month process of withdrawing the United States from Nafta in order to pressure House Democrats into passing the new United States-Mexico-Canada Agreement.
That threat undermined months of quiet negotiations between Mr. Lighthizer, labor groups and Democrats like Senator Sherrod Brown of Ohio and Representative Nancy Pelosi of California to try to win their support for the new trade deal. Mr. Trump has yet to follow through on his threat, and Mr. Lighthizer continues trying to work with Democrats to get the new trade deal approved.
“Bob is trying to provide stability and focus in a completely chaotic environment,” Mr. Brown said. “I can’t speak for Bob, but I am certain he is frustrated. How could you not be frustrated as the U.S. trade representative for a president who knows what his gut thinks but hasn’t put much of his brains into trade?”
The Chinese and U.S. economies are likely to slow in 2019, giving President Donald Trump and Chinese President Xi Jinping no choice but to declare a truce in their ferocious trade battle, according to a top Wall Street strategist.
“I think personally that the trade war is coming to an end and there is really nothing Trump can do about it,” Jim Paulsen, chief investment strategist at The Leuthold Group, said in the latest edition of the POLITICO Money podcast. “If you have the United States and China both with very weak economies, the negotiation around trade just evaporates. Neither party has any negotiating power left. They both have to stop what they are doing.”
More broadly, Paulsen said he thought recent market volatility and sharp declines were actually a good thing. He said he believes investors are panicking about a global recession that isn’t actually coming: “One of the good things we’ve got going on, I would say, as an investor, is we’ve got people freaking out. I think that’s a good thing.”
At first glance, it may not seem that China is really engaged in an arms race with the US. After all, China’s official defense budget for this year – at roughly $175 billion – amounts to just one-quarter of the $700 billion budget approved by the US Congress. But China’s actual military spending is estimated to be much higher than the official budget: according to the Stockholm International Peace Research Institute, China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion.
In any case, the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.
If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.
On the macro level, China’s growth is likely to continue to decelerate, owing to
- rapid population aging,
- high debt levels,
- maturity mismatches, and the
- escalating trade war
that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.
Moreover, while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment.1
.. The problem for the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets.
Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become.
The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”
Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries. Despite early signs of trouble – which, together with the Soviet Union’s experience, should give the CPC pause – China seems to be determined to push ahead with the BRI, which the country’s leaders have established as a pillar of their new “grand strategy.”
An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return. According to AidData at the College of William and Mary, from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion.1
Now, China has pledged to provide $62 billion in loans for the “China-Pakistan Economic Corridor.” That program will help Pakistan confront its looming balance-of-payments crisis; but it will also drain the Chinese government’s coffers at a time when trade protectionism threatens their replenishment.
Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.
In his first week he withdrew from the unratified 12-nation Trans-Pacific Partnership. He prepared to pull out of the U.S.-Korea Free Trade Agreement (Korus) and the North American Free Trade Agreement. Earlier this year he imposed steep tariffs on imports of steel and aluminum, using a little-used national security law, and threatened the same for autos.
Today, Korus and Nafta have been replaced by updated agreements(one not yet ratified) that look much like the originals. South Korea accepted quotas on steel. Mexico and Canada agreed to higher wages, North American content requirements and quotas for autos.
These represent a step back from free trade toward managed trade, but they will have little practical effect: The limits on how many cars Mexico and Canada can ship duty-free to the U.S., for example, exceed current shipments. Mr. Trump hasn’t stopped threatening auto tariffs, but for now his officials have elected instead to seek broader tariff reductions with Japan and the European Union.
.. Meanwhile, the U.S. trade deficit that incenses Mr. Trump has grown during his presidency, especially with China and Mexico, as a strong American economy sucks in imports. His exhortations to manufacturers to bring jobs back to the U.S. have largely fallen on deaf ears.