Senior U.S. officials accused Beijing on Monday of reneging on commitments it had agreed to during negotiations for a comprehensive trade deal and vowed that punishing tariffs on Chinese imports would more than double Friday.
But with the officials publicly underscoring President Trump’s weekend anti-China broadside, prospects for a deal this week — as the administration had hoped for — appear to be fading.
“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,” Lighthizer told reporters in Washington. “That, in our view, is unacceptable.”
The Chinese sought to make “substantial” changes in the agreed text of a voluminous, seven-chapter pact, he said, adding, “Really, I would use the word ‘reneging’ on prior commitments.”
The administration officials declined to specify where the Chinese sought to amend the proposed accord.
Chinese demands to water down provisions in the deal were delivered to the administration late last week, infuriating the president, who responded by announcing new tariff plans Sunday. That move triggered the sharpest fall in Chinese stock markets in more than three years.
In the United States, the market reaction was muted. The Dow Jones industrial average fell 471 points at the open, but quickly recovered and closed at 26,438.48, down less than 67 points or 0.25 percent.
The apparent diplomatic impasse comes with both countries having reason to believe they could endure a prolonged conflict — and with Chinese President Xi Jinping probably reassessing the political gains and losses associated with bowing to U.S. demands.
The U.S. economy grew in the first quarter at a surprisingly robust 3.2 percent rate, and unemployment fell last month to its lowest point in nearly 50 years. Meanwhile in China, government stimulus measures have insulated the economy from the worst effects of the trade war.
“Recent developments on both sides may have ended up strengthening both sides’ spines and reducing the urgency of a deal,” said David Loevinger, managing director of TCW, a Los Angeles-based investment firm.
Lighthizer and Mnuchin, who briefed reporters at the trade representative’s office, brushed aside worries about the impact on the economy or financial markets if the talks collapse. Mnuchin said stock market concerns are playing no role in the administration’s strategy.
Liu, the Chinese negotiator and a Xi ally, may have encountered political resistance when he presented the nearly complete deal to the Politburo Standing Committee of China’s Communist Party, said Dennis Wilder, a former China analyst for the Central Intelligence Agency.
U.S. demands for structural changes in China’s state-led economic model would hurt many state-owned enterprises and their political patrons.
“There may have been a little sticker shock,” Wilder said. “We’re dealing with a 150-page document that’s very comprehensive and touches all kinds of Chinese vested interests at the national and provincial levels.”
Trump’s ambitions for a fundamental reset of the U.S.-China economic relationship are colliding with internal politics in the opaque Chinese system. The American president wants a dramatic reduction in the $375 billion U.S. trade deficit with China along with an end to discrimination against foreign firms in China.
Though perhaps the most powerful Chinese ruler since Deng Xiaoping, Xi has been criticized for mismanaging the relationship with the United States and failing to understand its populist president.
“This is a monumental trade deal. It’s the biggest thing since they joined the [World Trade Organization] that we’ve tried to do with China,” Wilder said. “The stakes are very high, and they’re political stakes.”
The administration still is holding out hope for a deal. Mnuchin said that if the two sides make significant progress Thursday, “we would report back to the president.”
Trump has delayed the tariff increase — to 25 percent from 10 percent on $200 billion in Chinese goods — at least twice and could do so again.
But Lighthizer said he plans to publish the required Federal Register notice as soon as Thursday, formally setting in motion the increase, which would take effect Friday. In response to a question about the effect of a sudden tariff jump on American companies that have goods en route from China, Lighthizer said companies had received adequate warning of the import levies over months of trade talks.
Obtaining Chinese agreement to stop compelling U.S. companies to surrender their trade secrets to do business in China and to stop stealing American intellectual property would be worth suffering some short-term pain, he suggested.
“The practices that we are objecting to by China are having very negative effects on the U.S. economy,” he said. “These are not benign actions we are objecting to.”
In 10 rounds of bargaining over the past year, the two sides made “substantial progress, more progress than has ever been made before in any discussion with China,” Mnuchin said.
As an example, the two officials said the Chinese had agreed to eliminate “market-distorting subsidies,” a key U.S. objective.
Added Lighthizer: “We are still in the process of talking. We’re not breaking off talks at this point.”
The administration staged a show of unity Monday, with Larry Kudlow, head of the National Economic Council, and Peter Navarro, a leading White House China hawk, appearing in the room as Lighthizer and Mnuchin spoke.
Lighthizer and Navarro are generally regarded as seeking deep changes in Chinese trade and economic policies, while Kudlow and Mnuchin are seen as more worried about the health of U.S. financial markets.
Some industry groups already oppose an escalation of Trump’s tariff war. Cal Dooley, American Chemistry Council president, said the U.S. tariffs and China’s retaliatory levies are increasing the U.S. trade deficit.
American companies have been stockpiling chemicals from Chinese suppliers that are available from no other countries, while exports to China have been depressed by Chinese retaliation.
“The tariffs are disrupting supply chains, cutting off markets and eroding U.S. chemical manufacturing competitiveness,” said Dooley.
David French, senior vice president of government relations for the National Retail Federation, said that consumers would feel the sting of additional tariffs and that small businesses would struggle to absorb the blow.
“Anybody trying to run a business knows that what you want is predictability and consistency,” he said. “That certainly has not been the case on the trade front for a while.”
