Containers sit stacked next to gantry cranes at the Yangshan Deep Water Port in this aerial photograph taken in Shanghai, China. (Photographer: Qilai Shen/Bloomberg)

Cohn Sees No ‘Instant Cure’ on U.S.-China Trade After Midterms

(Bloomberg) -- Ex-White House economic adviser Gary Cohn said he didn’t expect Democratic election gains to speed the end of President Donald Trump’s China trade war, even as some in Beijing held out hope he might warm to talks.

“I don’t think there’s an instant cure for the trade issue,” Cohn told Bloomberg’s New Economy Forum in Singapore as assembled business and political leaders digested the results Wednesday. “I wish that I could sit here and say, after the midterm elections, the White House and the administration understand they’ve gotta solve trade issues.”

While the Democrats’ success in gaining control of the U.S. House of Representatives might frustrate Trump with investigations and make it harder for him to push through legislation, it might mean little for his trade policy. Trump can wield many of his preferred weapons, from tariffs to criminal probes, without congressional approval, and the opposition party has traditionally been more protectionist on trade.

Fuelling Dispute

The trade dispute has been propelled in part by widening bipartisan support for the need to confront China, a concern cited frequently during the two-day forum in Singapore. Even before the election results were clear, former U.S. Treasury Secretary Hank Paulson warned of an “Economic Iron Curtain” dividing the world, if the two sides failed to resolve strategic differences.

“I would often hear Chinese express hope that the Dems winning the House back could translate into a softer stance from the U.S. with regard to the ongoing trade disputes with China,” said Paul Haenle, a former China director for the National Security Council who now heads the Carnegie-Tsinghua Center in Beijing. “That kind of thinking grossly underestimates the growing consensus in D.C. on the need to adopt a much tougher approach.”

The results stoked a volatile session for Chinese stocks as investors weighed how the results would impact the trade dispute. The MSCI China Index rose as much as 1.3 percent, erased it all to fall 0.7 percent, and then turned higher again in mid-afternoon trading. China’s yuan weakened against the dollar.

Trump’s decision to impose tariffs on $250 billion of Chinese goods has led to retaliation from Beijing and exacerbated a raft of disputes, from human rights to U.S. support for the democratically run island of Taiwan. While the fight threatens to increase consumer prices and hurt American farmers who export to China, it’s also provided the president with helpful foil on the campaign trail.

With the election over, some in China were hopeful that Trump might be more open to a thaw in discussions. Trump is slated to meet Chinese President Xi Jinping at the Group of 20 summit that begins later this month in Argentina.

‘China Card’

“It’s a good news for the ongoing trade war in the short term,” said Wang Wen, a researcher with the Financial Study Center affiliated with the Counselors’ Office of the State Council. “In the long run, frictions will be the new norm of China and U.S. bilateral relations in areas like information, currency and investment, et cetera. In the run up to the next presidential election, Trump will still play the China card.”

Chinese Vice President Wang Qishan -- a long-time ally of Xi’s -- told the NEF forum Tuesday was ready to discuss solutions to the trade war, while warning that China must “blaze its own trail” and wouldn’t again be “bullied and oppressed by imperialist powers.”

“The two leaders may suspend the trade war and reach consensus, which needs support from more concrete trade talks,” said He Weiwen, a former commerce ministry official who’s now a senior fellow at the Center for China and Globalization in Beijing. “When President Trump starts to prepare for a second term election and reviews the impact on U.S. by trade disputes, that consideration will probably lead to adjustments in his trade policy.”

Key Issues

Cohn, who left the White House this year after losing a battle against tariffs, used the forum to take a few swipes at his former boss’s economic policies. The former Goldman Sachs Group Inc. president said he couldn’t explain why Trump was so fixated on trade deficits.

Trump found “one economist on Amazon who thinks trade deficits matter, and he listens to him,” Cohn said. He said the U.S. should concentrate on systemic issues with China, such as market access, intellectual-property-rights enforcement and forced technology transfers, instead of pressuring them to purchase more American goods.

“The Chinese would solve the first issue and buy a lot more LNG, natural gas from us, and more agriculture products, and bring down the trade deficit,” Cohn said. “But it doesn’t really solve the core issue, which is paying for intellectual property and respecting copyright infringement.”

©2018 Bloomberg L.P.