Wilbur Ross, U.S. commerce secretary, looks on during a panel discussion at the OECD forum in Paris, France. (Photographer: Christophe Morin/Bloomberg)

Ross to Push China on Trade as U.S. Faces Tariff Pushback

(Bloomberg) -- Commerce Secretary Wilbur Ross arrived in Beijing on Saturday as he seeks to persuade Chinese officials to import significantly more American goods and remove structural barriers even as the U.S. faces pushback over new tariff threats imposed on some of its closest allies.

Ross to Push China on Trade as U.S. Faces Tariff Pushback

Ross is scheduled to meet with Vice Premier Liu He on Sunday, according to a U.S. government official, in the third round of trade talks between the world’s two biggest economies. During his two-day stay, Ross will be looking to build on a vague joint statement released May 19, after the last negotiations in Washington. China pledged to take steps to “substantially” reduce the U.S. trade deficit, including by buying more American farm goods and energy, though it didn’t commit to a dollar amount.

At the time, it appeared the Trump administration might be preparing to take a more conciliatory approach toward trade, calming fears of a global trade war. After the joint statement was released, Treasury Secretary Steven Mnuchin said the Trump administration was shelving a plan to impose tariffs on Chinese goods. Just over a week later, President Donald Trump said the U.S. was instead forging ahead with a plan to slap tariffs on up to $50 billion in Chinese imports.

Then on Friday, the U.S. imposed tariffs on steel and aluminum from the European Union, Canada and Mexico, all of which announced they would retaliate with their own duties. The U.S. move provoked anger and frustration in capitals usually seen as strongholds of American support, with Canadian Prime Minister Justin Trudeau calling the duties “totally unacceptable.”

‘Huge Mistake’

“It is a huge mistake to attack our friends and allies with tariffs at the very time we need them in a coalition to press the Chinese on their policies that disadvantage all of us,” said William Reinsch, a senior adviser at the Center for Strategic and International Studies and a former Commerce Department official under Bill Clinton.

The Trump administration’s shifting stance on China may also complicate Ross’s ability to extract concessions from Beijing. This week, White House trade adviser Peter Navarro called Mnuchin’s truce declaration an “unfortunate sound bite,” and acknowledged that the U.S. remains in a trade dispute with China.

“I actually feel a little sorry for Secretary Ross,” said Phil Levy, a senior fellow at the Chicago Council on Global Affairs and former senior trade economist to George W. Bush’s Council of Economic Advisers. “You don’t have much consistency coming out of this president, so it’s uncertain how much confidence Secretary Ross can have, or the Chinese can have, that whatever they work out will actually amount to anything.”

High Stakes

The stakes are high for the global economy, which is cruising at its fastest pace of growth in seven years. But the International Monetary Fund has warned that a trade war could threaten the recovery, and policy makers are contending with a growing list of geopolitical risks, from a political crisis in Italy to the rocky progress of peace talks with North Korea.

Mnuchin said Saturday the U.S. wants to see “structural changes” in the Chinese economy.

“This isn’t just about buying more goods. This is about structural changes,” Mnuchin told reporters in Whistler, Canada at the close of a summit of G-7 finance chiefs. “If there are structural changes that allow our companies to compete fairly, by definition that will deal with the trade deficit alone.”

In an environment where investors are already jittery, the Trump administration’s aggressive negotiating approach toward China “has ignited extreme market volatility,” said Andrew Harmstone, a senior portfolio manager at Morgan Stanley. “We expect this pattern to continue because we think that these trade threats are a negotiating tactic -- not an attempt to destroy global trade.”

The trade dispute began in March, when the president threatened to slap tariffs on up to $50 billion in Chinese imports to punish Beijing for abusing American intellectual-property rights. By June 15, the administration plans to publish a final list of products to which the duties will apply, with them taking effect “shortly thereafter.”

Leverage Point

The tariff threat may enhance Ross’s leverage as he sits down in Beijing with his Chinese counterparts. But he will also be under pressure from U.S. lawmakers to stay tough on Chinese telecom-equipment maker ZTE Corp. Last month, Trump said he would allow ZTE to stay in business once it pays a $1.3 billion fine, shakes up its management, and provides “high-level security guarantees.”

China pressed the U.S. to give ZTE a break after the Commerce Department cut off the company from U.S. suppliers to punish it for allegedly lying to American officials in a sanctions case. Republican Senator Marco Rubio and other lawmakers from both parties have questioned Trump’s leniency toward ZTE, arguing the company represents a security risk.

Limited Success

Trump has made it a priority to cut America’s $375 billion trade deficit with China. In demands submitted to the Chinese, the Trump administration pressed Beijing to cut the gap by $200 billion in two years.

The U.S. will have limited success overhauling the trade relationship if it focuses on securing promises by China to buy more of specific American products, said Stefan Selig, managing partner at BridgePark Advisors LLC and former undersecretary for international trade at the Commerce Department under Barack Obama. Doing so won’t necessarily alter the basic economic policies driving the trade imbalance, he said.

“These are complicated and difficult problems,” Selig said. “If it looks like a shopping list, that is a loser. If it looks like the beginning of a series of commitments by the Chinese to deal with issues in specific industries, that would be welcome.”

©2018 Bloomberg L.P.