(Bloomberg) -- President Donald Trump retreated from imposing tariffs on billions of dollars worth of Chinese goods because of White House discord over trade strategy and concern about harming negotiations with North Korea, according to people briefed on the administration’s deliberations.
Trump also succumbed to pressure from farm-state Republicans, who heavily lobbied the White House to resolve its trade differences with China, which had especially targeted U.S. agricultural products with planned retaliatory tariffs.
Treasury Secretary Steven Mnuchin said Sunday that the administration’s plan to impose tariffs had been suspended, and Trump said on Twitter on Monday that the Chinese had agreed to purchase unspecified amounts of American farm products. Some of his loyalists led by former chief strategist Steven Bannon criticized the deal as a capitulation.
The agreement at least delays a trade war between the world’s two largest economies, a prospect that has rattled financial markets for months. But many U.S. concerns about China’s economic practices remain unresolved: its acquisition of American technologies; the country’s plans to subsidize the growth of advanced domestic industries such as artificial intelligence and clean energy; and U.S. companies’ access to China’s markets.
Bannon blamed Mnuchin. Trump “changed the dynamic regarding China but in one weekend Secretary Mnuchin has given it away,” he said in an interview. “Mnuchin has completely misread the geopolitical, military, and historical precedents, and what President Trump had done was finally put the Chinese on their back heels.”
Some White House officials blame poor coordination among the warring factions in Trump’s economic team for the retreat, according to several people briefed on the matter. Within the administration, divisions are raw between free-trade supporters such as Mnuchin and White House economic adviser Larry Kudlow and China hawks led by White House trade adviser Peter Navarro.
During a trip to Beijing earlier this month, Navarro and Mnuchin argued about the U.S. negotiating position, and Navarro wasn’t deeply involved last week in negotiations with a Chinese delegation in Washington.
The divisions are apparent in Trump’s public actions. In April, the Commerce Department cut off Chinese telecommunications company ZTE Corp. from its American suppliers in response to what Commerce Secretary Wilbur Ross called “egregious” violations of U.S. sanctions against doing business in Iran and North Korea.
Trump reversed the action via tweet a week ago, declaring that it would cost “too many jobs in China.”
The Wall Street Journal reported that China and the U.S. have agreed on a “broad outline” of a settlement to ZTE situation. The paper cited unidentified people who knew of the deal in reporting that it may include lifting the ban on American technology sales to the company, possible fines and a call for major management changes.
Senator Marco Rubio, a Florida Republican who in recent days has been critical of how the Trump administration is handling trade issues with China, said that if the Journal story is true it means the U.S. has "surrendered" to the Chinese on ZTE issues. He said Congress will begin working on a veto-proof legislative fix.
"Making changes to their board & a fine won’t stop them from spying & stealing from us," Rubio said Tuesday on Twitter. "But this is too important to be over."
Asked about the report, a foreign ministry spokesman told reporters Tuesday in Beijing that the trade deal is still being negotiated, without providing more detail. He repeated prior statements that a consensus had been reached and the U.S. would send a delegation to China to work out the details.
“If these reports are true, the fines and board changes will do nothing to protect American national or economic security and are simply a diversion from the fact we have lost," Senate Minority Leader Chuck Schumer of New York said in a statement. "President Xi has played President Trump and Secretary Mnuchin.”
While Schumer is a Democrat, he has consistently complimented Trump’s confrontation of China.
The White House said in a statement Monday that “the president and his entire administration are committed to ending decades of unfair and illegal trading practices that harm our farmers, workers and many other parts of the U.S. economy."
"The president will not back down until we see meaningful and lasting change,” the White House added.
North Korea Specter
Looming large over negotiations with China are separate but inextricable talks with North Korea over its nuclear weapons program. Trump is counting on Chinese President Xi Jinping to maintain pressure on North Korean leader Kim Jong Un, whose country is economically dependent on China.
Last week, North Korea’s state-run news agency and top officials began issuing threats to back out of a planned June 12 summit in Singapore between Trump and Kim. Trump suggested himself that Xi was pulling strings in Pyongyang to put pressure on U.S. trade negotiators.
White House officials think Trump could take a harder line on China after the North Korea summit, the people briefed on administration discussions said.
Some Republicans warned Trump that congressional seats held by their party that should have been safe in midterm elections were endangered by the trade dispute. Several farm-state lawmakers expressed relief that a damaging round of tariffs is -- for now -- no longer on the horizon.
“It would be catastrophic,” Senator Chuck Grassley of Iowa said. The Chinese had targeted soybeans, one of his state’s top exports to the country, as one product for retaliatory tariffs.
“We have made the case to the White House at least twice in the last four months,” he said in an interview.
But Trump loyalists including Bannon and campaign trade adviser Dan DiMicco were among the loudest critics of the president’s retreat.
“It gives the appearance that the Chinese are doing what they’ve always done to us: put in significant delay tactics,” DiMicco, who now serves on an advisory committee for the the U.S. Trade Representative, said in a phone interview. “It’s a road we’ve been down for 25 years and has gotten us nothing but trouble - -more theft of IP, more stealing and hacking of proprietary information of companies in this country, ever growing trade deficit in manufactured goods.”
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