Frustration, Miscalculation: Inside the U.S.-China Trade Impasse

The latest breakdown shows the two countries still haven’t found a way to negotiate effectively. ‘Sometimes you need to say “stop screwing me.”’

The U.S. and Chinese governments both sent signals ahead of their trade talks in Washington last week that a pact was so near they would discuss the logistics of a signing ceremony.

In a matter of days, the dynamic shifted so markedly that the Chinese deliberated whether to even show up after President Trump ordered a last-minute increase in tariffs on Chinese imports because the U.S. viewed China as reneging on previous commitments.

Inside the cloistered Zhongnanhai government compound in Beijing, President Xi Jinping and his close advisers discussed how to respond to the tariff increase, given the talks were just days away, according to Chinese officials with knowledge of the decision-making process.

After huddling Tuesday to analyze a press conference given by the U.S.’s two top negotiators, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer, Chinese officials concluded that they should travel to at least avoid a rift that could be difficult to repair.

The recommendation went to China’s chief negotiator, Liu He, and ultimately to Mr. Xi. He decided to send the team even though Beijing was fully aware that the trip held little prospect of progress, given how quickly problems had arisen. “The goal was simply to keep the talks going,” said one of the Chinese officials with knowledge of the matter.

By the end of the week, that was as much as both sides could cite for their efforts: the avoidance of a serious rupture that would doom any prospect of a future deal and a commitment to stay near the negotiating table.

So far, the trade talks have provided little evidence that the two nations have found a formula for how to negotiate successfully since Messrs. Trump and Xi met in Buenos Aires Dec. 1, which paved the way to Washington last week.

China didn’t immediately impose new strictures on U.S. businesses, as it has done when things weren’t going well in the past. Mr. Liu is expected to brief Mr. Xi on the discussions he had in Washington before Beijing decides on the next course of action, according to the officials familiar with the process.

.. Bridging the trade rift may ultimately depend on the personal chemistry between President Trump and President Xi and their willingness to push matters forward after months of negotiations that have been full of positive intentions but thwarted by miscalculations, accusations of backtracking and unfulfilled expectations.

.. “They were playing games with us,” said one senior U.S. trade official of the talks in Washington three months ago. Mr. Kudlow told reporters at the time that Mr. Lighthizer “read them the riot act.

“The more heated moments have been in situations where we thought we had something and suddenly there was some backsliding,” said one person involved in the discussions on the U.S. side.

“We’ve expressed some pretty serious frustration at times,” this person said. “It’s been a necessary ingredient to success. You can be nice to someone, but sometimes you need to say ‘stop screwing me.’ ”

.. “We were in the process of planning for a signing summit with President Trump and President Xi upon the completion of this agreement,” Mr. Mnuchin later told reporters. One of the issues was where to hold the celebratory moment: Washington or Mr. Trump’s golf estates in Mar-a-Lago, in Florida, or Bedminster, N.J., say Trump aides.

 .. Chinese negotiators let their U.S. counterparts know that they had serious reservations with the text. The Chinese were no longer willing to commit to changing laws covering intellectual property, forced technology transfer, subsidies and other issues at the heart of the dispute. They also objected to publication of all the details of the text, preferring a summary.

To the Chinese, this was a matter of honor: The U.S. should trust Beijing to make the changes they said they would make, even if that meant changing regulations rather than laws. Besides, the U.S. was being unfair in refusing, upon the signing of a deal, to remove tariffs that had been assessed in the yearlong fight, the Chinese believed.

“There is a real desire on our end to keep the tariffs on,” one White House official said. “That is a sticking point.”

Another major area of conflict has been how to deal with what the U.S. sees as Chinese recalcitrance on clamping down on the theft of U.S. intellectual property, said people briefed on the talks. The U.S. initially had sought to appeal to Mr. Xi’s nationalistic tendencies, arguing that if China was as great as Mr. Xi portrayed it, why would it need to steal U.S. technology?

The Trump administration believed it had an agreement that included a satisfactory level of enforcement should the Chinese record not improve. “Not tiger teeth, but real enough to make a deal,” one of the people tracking the talks said.

Then Chinese officials said enforcement procedures would need to go through Chinese law-enforcement channels and couldn’t be guaranteed at the negotiating table, this person said, which U.S. officials didn’t view as a credible option.

In Beijing, as the talks approached, Chinese officials believed they had some leverage, The Wall Street Journal has previously reported, because they saw Mr. Trump’s public criticism of the Federal Reserve and his desire for lower interest rates as a sign that he was worried about the future course of the U.S. economy and therefore may be more eager to do a deal. It was a miscalculation on their part; Mr. Trump has long called for low borrowing costs and also has repeatedly cited the enduring strength of the U.S. economy.

President Xi also was encouraged by a pickup in Chinese growth—the result of Beijing’s aggressive stimulus policies—and by a perception that the American economy is about to enter a down cycle.Time is on our side,” said a senior official in Beijing. On the home front, Mr. Xi is wary of a potential political backlash as a result of any perception that he is conceding too much to Washington.

Chinese officials were therefore caught off guard, three days before the Washington talks were scheduled, when Mr. Trump said on Twitter he would increase tariffs, to 25% from 10%, on the $200 billion in Chinese goods because he saw the Chinese backtracking—the original threat he had set for a March 1 deadline.

Shortly after Mr. Trump’s announcement of the tariff increase, Beijing’s trade negotiators, who had booked Air China tickets to Washington, received an urgent order: Stay put until further notice. “Looks like we’re not going,” one of them said early Monday morning.

Up until that moment, China’s leadership had expected the trip to bring months of negotiations to a close, according to Chinese officials close to the negotiation process, given that Chinese diplomats were already in discussion with their American counterparts about a possible summit between Messrs. Xi and Trump to finalize a trade agreement.

Now, the pressing question for Beijing became: Should it pull out of the planned talks to adhere to its longstanding public position that China doesn’t negotiate under threat? Or should China bite the bullet and still send the delegation to avoid a complete collapse of negotiations?

The Chinese side wanted more information from Washington before making the decision. But senior officials knew news of Mr. Trump’s tweets would inevitably cause market anxiety. The first order of business Monday morning: China’s central bank sped up a plan to release more funds for banks, a stimulus measure aimed at calming jittery investors and businesses.

State-backed funds were also instructed to buy what was necessary to prevent a free fall of shares. China’s Foreign Ministry spokesman released a statement at Monday’s regular press briefing that said only that the Chinese delegation was “preparing to travel to the U.S.” The spokesman didn’t say when the team would depart or give additional details.

On Tuesday morning, a group of officials at the vice minister level, including Liao Min, a trusted aide to Mr. Liu and a vice Finance Minister, and Wang Shouwen, a vice Commerce Minister, reached the conclusion the talks should proceed, a position endorsed by Mr. Xi though expectations of a positive result had fallen sharply.

The U.S. side made some calls that turned off the Chinese, too. By insisting that it wouldn’t remove any tariffs upon closing a deal, the U.S. gave Beijing little incentive to accept tough conditions. The U.S. position remained firm: no tariff removal until Beijing showed it would carry through on the commitments it made under the deal. On top of that, the U.S. wanted China to pledge not to retaliate if the U.S. were to reimpose tariffs if it found China in violation of some provisions.

Mr. Trump on Thursday let it be known he didn’t want the U.S. to appear soft on China, according to one person briefed on the matter.

The two days of negotiations went amicably nonetheless, according to people tracking the talks. Messrs Lighthizer and Mnuchin, who both were in the discussions, took Mr. Liu to a working dinner at the Metropolitan Club, a ritzy private club near the U.S. Trade Representative’s headquarters that is a Lighthizer favorite. Mr. Liu continued the talks on Friday despite the U.S. implementing the higher tariffs very early Friday morning.

Later that morning, Mr. Lighthizer greeted the Chinese envoy at the door of the USTR office—a gesture he rarely makes, but one which he could be sure would be captured by photographers and camera crews waiting outside.

By then, though, the U.S. team went into the talks not expecting to do a deal, figuring they would have a “non-meeting,” according to one person briefed on the discussions. U.S. officials at least wanted to make sure they didn’t leave with a complete break. The goal of the meeting was to be able to say the U.S. negotiators were still trying, this person said.

In an interview with Chinese media Friday, Mr. Liu disputed U.S. accounts that China reneged on commitments it had already made as part of the trade talks. “We are very clear that we cannot make concessions on matters of principle,” Mr. Liu said. “We hope our U.S. colleagues understand this.”

China Hardens Trade Stance as Talks Enter New Phase

Chinese negotiators emboldened by perception U.S. was willing to compromise

The hardened battle lines were prompted by Beijing’s decision to take a more aggressive stance in negotiations, according to the people following the talks. They said Beijing was emboldened by the perception that the U.S. was ready to compromise.

  1. In particular, these people said, Mr. Trump’s hectoring of Federal Reserve Chairman Jerome Powell to cut interest rates was seen in Beijing as evidence that the president thought the U.S. economy was more fragile than he claimed.
  2. Beijing was further encouraged by Mr. Trump’s frequent claim of friendship with Chinese President Xi Jinping and by Mr. Trump’s praise for Chinese Vice Premier Liu He for pledging to buy more U.S. soybeans.

An April 30 tweet, in which Mr. Trump coupled criticism of Mr. Powell with praise of Chinese economic policy, especially caught the eye of senior officials. “China is adding great stimulus to its economy while at the same time keeping interest rates low,” Mr. Trump tweeted. “Our Federal Reserve has incessantly lifted interest rates.”

Why would you be constantly asking the Fed to lower rates if your economy is not turning weak,” said Mei Xinyu, an analyst at a think tank affiliated with China’s Commerce Ministry. If the U.S.’s resolve was weakening, the thinking in Beijing went, the U.S. would be more willing to cut a deal, even if Beijing hardened its positions.

That assessment, however, flies in the face of a strong U.S. economy. Gross domestic product in the first quarter rebounded from the end of 2018, with growth clocking in at a seasonally adjusted annualized rate of 3.2%, up from 2.2% the prior quarter. The jobs report for April, released on Friday, showed the unemployment rate falling to 3.6%, the lowest in nearly 50 years.

But at the same time, China’s economy has stabilized this year following months of weakness. Although China’s exports dropped unexpectedly in April, its first-quarter growth came in at 6.4%, beating market expectations. The generally improving economic picture gave Beijing more confidence in trade talks, as did a recent conference on the country’s vast infrastructure-spending program, called the Belt and Road Initiative, which was attended by about 40 heads of government and state.

Chinese leaders saw the conference turnout “as China has more leverage to improve relations with other countries and with the U.S. business community,” said Brookings Institution China specialist Cheng Li. “It made them play hardball.”

If China misread the signals—and vice versa—it wouldn’t be the first time.

The history of U.S.-China trade negotiations is filled with misunderstandings, as the two nations, with very different political systems, struggle to figure out each other’s intentions.

.. In another apparent sign of mixed signals, Trump administration officials had thought they had made it clear that they were weary of negotiations and that it was time for Beijing to make specific commitments to change laws, including adding protections for intellectual property and barring the forced transfer of U.S. technology.

As talks resume Thursday, one big question mark is whether China will agree to U.S. demands for changes in Chinese law to implement the trade deal. Beijing maintains this would impinge on Chinese sovereignty and take too long to implement, but Beijing had made similar commitments in prior trade deals, including those it signed to join the WTO in 2001.

U.S. officials say Beijing has failed to make good on those commitments, while China has promised to further liberalize its economy.

“The U.S. is correct to seek a multiprong approach of not relying solely on commitments but also actually changes to the laws, so as to ensure Chinese leadership intentions are fully conveyed down to all local levels of government,” said Harvard Law Professor Mark Wu.

Stock Market Rout Has Trump Fixated on Fed Chair Powell

 President Trump has unabashedly hitched his political fortunes to a rising stock market. Now, with stock prices in retreat, he has become increasingly fixated on the idea that one man is to blame for the recent rout: Jerome H. Powell, chairman of the Federal Reserve.

After the Fed raised its benchmark interest rate on Wednesday, the fifth consecutive quarterly increase, Mr. Trump fretted to aides that Mr. Powell would “turn me into Hoover,” a reference to the man who was president in the early years of the Great Depression.

Mr. Trump has said choosing Mr. Powell for the Fed job last year was the worst mistake of his presidency, and he has asked aides whether he has the power to fire him.

But the volatile stock market, which just posted its worst week since 2008, is falling in part because of Mr. Trump’s own policies, including

  • an escalating trade war with China,
  • a shutdown of the federal government and
  • the fading effects of the $1.5 trillion tax cut Mr. Trump ushered in at the end of 2017.

While the Fed’s rate increases have upset investors — who seem to have a darker view of economic growth than the central bank does — some analysts said Mr. Trump’s musings about the Fed would only exacerbate anxieties.

If Powell gets terminated, what we’ve seen happen in the markets in the past few weeks will look like a walk in the park,” David Rosenberg, chief economist at Gluskin Sheff, said in an email on Sunday. “The dollar will go into a tailspin, and even confidence in the Treasury market will erode, especially among foreign creditors.”

Mr. Trump’s economic advisers scrambled over the weekend to reassure markets that Mr. Trump was not, in fact, planning to fire Mr. Powell. Treasury Secretary Steven Mnuchin tweeted what he said was a quote from Mr. Trump accepting that he did not even have the power to do so.

Mick Mulvaney, the incoming acting White House chief of staff, implied on Sunday that Mr. Trump had, in fact, inquired about removing Mr. Powell, saying on ABC’s “This Week” that the president “now realizes he does not have the authority.” But Mr. Mulvaney added that he had heard this from Mr. Mnuchin, not from Mr. Trump.

.. Mr. Mnuchin has worked in recent days to obtain Mr. Trump’s assurance that he would not remove Mr. Powell, according to an administration official who spoke on condition of anonymity. But that person cautioned that Mr. Trump could change his mind. The person noted Mr. Trump has a tendency to nurse grudges even when he temporarily sets a subject aside.

.. Some economists argue the Fed should continue its stimulus campaign to drive up employment and wages. They note that the Fed is about to undershoot its 2 percent inflation target for the seventh consecutive year, suggesting there is no need to step on the brakes.

.. In fact, during his presidential campaign, Mr. Trump accused the Fed of getting political, saying that the bank’s chairwoman at the time, Janet L. Yellen, should be “ashamed” for keeping interest rates low — a move he said was meant to help President Barack Obama.

But it is far from clear such a decision would serve the president’s purpose. A replacement for Mr. Powell would require Senate confirmation, and this person would join a policymaking committee that voted unanimously for the December rate increase. That committee also might be inclined, on future rate decisions, to demonstrate its independence from the president.
.. Mr. Trump also chose three of the other four members of the Fed’s board, all of whom joined Mr. Powell in voting for all four 2018 rate increases.
In conversations with friends and advisers, Mr. Trump has acknowledged responsibility for the selection of Mr. Powell. He told Stephen Moore, an economist at the Heritage Foundation, that it was “one of the worst choices I’ve ever made,” according to Mr. Moore.
Some of Mr. Trump’s economic advisers have encouraged him to remove Mr. Powell, arguing that the decision would reverse recent stock declines.

Sarah Binder, a professor of political science at George Washington University, said presidents had often tried to shape Fed policy, but the current episode stood apart because Mr. Trump appeared to be acting against his own interest in a stable economy.

“I think what is the unusual part here is that it seems the president has created the crisis,” she said. “His intervention certainly seems to be making things worse for him and worse for the Fed and worse for the economy. It’s just very shortsighted, and we’re not used to that.”

Time for G.O.P. to Threaten to Fire Trump

Republican leaders need to mount an intervention.

Up to now I have not favored removing President Trump from office. I felt strongly that it would be best for the country that he leave the way he came in, through the ballot box. But last week was a watershed moment for me, and I think for many Americans, including some Republicans.

It was the moment when you had to ask whether we really can survive two more years of Trump as president, whether this man and his demented behavior — which will get only worse as the Mueller investigation concludes — are going to destabilize our country, our markets, our key institutions and, by extension, the world. And therefore his removal from office now has to be on the table.

I believe that the only responsible choice for the Republican Party today is an intervention with the president that makes clear that if there is not a radical change in how he conducts himself — and I think that is unlikely — the party’s leadership will have no choice but to press for his resignation or join calls for his impeachment.

It has to start with Republicans, given both the numbers needed in the Senate and political reality. Removing this president has to be an act of national unity as much as possibleotherwise it will tear the country apart even more. I know that such an action is very difficult for today’s G.O.P., but the time is long past for it to rise to confront this crisis of American leadership.

Trump’s behavior has become so erratic, his lying so persistent, his willingness to fulfill the basic functions of the presidency — like

  • reading briefing books,
  • consulting government experts before making major changes and
  • appointing a competent staff — so absent,

his readiness to accommodate Russia and spurn allies so disturbing and his obsession with himself and his ego over all other considerations so consistent, two more years of him in office could pose a real threat to our nation. Vice President Mike Pence could not possibly be worse.

The damage an out-of-control Trump can do goes well beyond our borders. America is the keystone of global stability. Our world is the way it is today — a place that, despite all its problems, still enjoys more peace and prosperity than at any time in history — because America is the way it is (or at least was). And that is a nation that at its best has always stood up for the universal values of freedom and human rights, has always paid extra to stabilize the global system from which we were the biggest beneficiary and has always nurtured and protected alliances with like-minded nations.

Donald Trump has proved time and again that he knows nothing of the history or importance of this America. That was made starkly clear in Secretary of Defense Jim Mattis’s resignation letter.

Trump is in the grip of a mad notion that the entire web of global institutions and alliances built after World War II — which, with all their imperfections, have provided the connective tissues that have created this unprecedented era of peace and prosperity — threatens American sovereignty and prosperity and that we are better off without them.

So Trump gloats at the troubles facing the European Union, urges Britain to exit and leaks that he’d consider quitting NATO. These are institutions that all need to be improved, but not scrapped. If America becomes a predator on all the treaties, multilateral institutions and alliances holding the world together; if America goes from being the world’s anchor of stability to an engine of instability; if America goes from a democracy built on the twin pillars of truth and trust to a country where it is acceptable for the president to attack truth and trust on a daily basis, watch out: Your kids won’t just grow up in a different America. They will grow up in a different world.

The last time America disengaged from the world remotely in this manner was in the 1930s, and you remember what followed: World War II.

You have no idea how quickly institutions like NATO and the E.U. and the World Trade Organization and just basic global norms — like thou shalt not kill and dismember a journalist in your own consulate — can unravel when America goes AWOL or haywire under a shameless isolated president.

But this is not just about the world, it’s about the minimum decorum and stability we expect from our president. If the C.E.O. of any public company in America behaved like Trump has over the past two years —

  • constantly lying,
  • tossing out aides like they were Kleenex,
  • tweeting endlessly like a teenager,
  • ignoring the advice of experts —

he or she would have been fired by the board of directors long ago. Should we expect less for our president?

That’s what the financial markets are now asking. For the first two years of the Trump presidency the markets treated his dishonesty and craziness as background noise to all the soaring corporate profits and stocks. But that is no longer the case. Trump has markets worried.

.. The instability Trump is generating — including his attacks on the chairman of the Federal Reserve — is causing investors to wonder where the economic and geopolitical management will come from as the economy slows down.

  • What if we’re plunged into an economic crisis and we have a president whose first instinct is always to blame others and
  • who’s already purged from his side the most sober adults willing to tell him that his vaunted “gut instincts” have no grounding in economics or in law or in common sense. Mattis was the last one.

We are now left with the B team — all the people who were ready to take the jobs that Trump’s first team either resigned from — because they could not countenance his lying, chaos and ignorance — or were fired from for the same reasons.

I seriously doubt that any of these B-players would have been hired by any other administration. Not only do they not inspire confidence in a crisis, but they are all walking around knowing that Trump would stab every one of them in the back with his Twitter knife, at any moment, if it served him. This makes them even less effective.

Indeed, Trump’s biggest disruption has been to undermine the norms and values we associate with a U.S. president and U.S. leadership. And now that Trump has freed himself of all restraints from within his White House staff, his cabinet and his party — so that “Trump can be Trump,” we are told — he is freer than ever to remake America in his image.

And what is that image? According to The Washington Post’s latest tally, Trump has made 7,546 false or misleading claims, an average of five a day, through Dec. 20, the 700th day of his term in office. And all that was supposedly before “we let Trump be Trump.”

If America starts to behave as a selfish, shameless, lying grifter like Trump, you simply cannot imagine how unstable — how disruptive —world markets and geopolitics may become.

We cannot afford to find out.