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Trump Asks Cabinet to Draft Possible Trade Deal With China

The push for a possible deal with China was prompted by the president’s telephone call with Xi on Thursday,

Trump Asks Cabinet to Draft Possible Trade Deal With China
A loaded China Shipping container ship makes its way down the main channel at the Port of Los Angeles in Los Angeles, California, U.S. (Photographer: Tim Rue/Bloomberg News)

(Bloomberg) -- President Donald Trump wants to reach an agreement on trade with Chinese President Xi Jinping at the Group of 20 nations summit in Argentina later this month and has asked key U.S. officials to begin drafting potential terms, according to four people familiar with the matter.

The push for a possible deal with China followed a telephone call the president set up with Xi on Thursday, the people said, requesting anonymity to discuss internal deliberations.

Trump asked key Cabinet secretaries to have their staff draw up a potential deal to stop the escalating trade conflict with Beijing, the people said, adding that multiple agencies are involved in drafting the plan. It was unclear if Trump was easing up on U.S. demands that China has resisted, and reaching any accord still faces significant hurdles.

White House economic adviser Larry Kudlow said the administration wasn’t making any unusual preparations for the G-20 meeting in an interview with CNBC Friday afternoon.

“No, not specifically,” Kudlow responded when asked about Bloomberg’s report on Trump’s directions. “We’re doing a normal, routine run-through of things we already put together and normal preparation. OK, there’s no mass movement, there’s no huge thing, we’re not on the cusp of a deal.”

U.S. Trade Representative Robert Lighthizer has reservations about pursuing a trade agreement at the G-20 and has expressed his concerns to others in the administration, according to two of the people. Lighthizer’s office didn’t immediately respond to a request for comment.

One person said a key sticking point in any potential deal is intellectual property theft, where the Trump administration has sought to take a hard line. On Thursday, the U.S. charged a Chinese state-owned company with conspiring to steal trade secrets from U.S. chipmaker Micron Technology Inc., part of a Justice Department crackdown against China in cases of suspected economic espionage.

Trump Asks Cabinet to Draft Possible Trade Deal With China

News of constructive talks between Trump and Xi prompted stocks to surge in Hong Kong and China, while the offshore yuan jumped as much as 0.5 percent for the biggest two-day gain since August. The Hang Seng Index rose 4.2 percent, the biggest gain since 2011, and the Shanghai Composite Index climbed 2.7 percent, posting a fourth day of gains for its longest winning streak since February.

U.S.-China talks have made little progress since May, when Trump put a stop to a deal that would see China buy more energy and agricultural goods to narrow the trade deficit. In Beijing Trump’s move was seen as an insult to Xi, who sent a personal emissary to Washington for the negotiations, and cemented a view that Trump’s real goal is to thwart China’s rise.

The telephone conversation on Thursday was Trump and Xi’s first publicly disclosed call in six months. Both sides reported that they had constructive discussions on North Korea and trade, with Chinese state media saying that Trump supported “frequent, direct communication” between the presidents and “joint efforts to prepare for” the planned meeting on the sidelines of the Group of 20 summit, which is scheduled to take place from Nov. 30 to Dec. 1.

“Those discussions are moving along nicely,” Trump wrote on Twitter Thursday. At a campaign rally in Columbia, Missouri, on Thursday night he said, “they want to make a deal.”

“He wants to do it,” Trump said of Xi. “They all want to do it.”

Trump risks political blow-back if any deal is regarded as a concession to China. Derek Scissors, a China expert at the American Enterprise Institute, compared the development to Trump’s decision in May to ease up on sanctions he imposed on Chinese telecom equipment maker ZTE Corp., a move that was also prompted by a phone call with Xi.

“If this does turn out to be ZTE round 2, the president will be attacked by Democrats, and some Republicans, for talking a huge game on China but instead being played,” he said.

The possible thaw in relations comes after months of escalating tensions over trade that threatened to spill into other areas of disagreement, including China’s military build-up in the South China Sea. The Trump administration this year has already imposed tariffs on $250 billion in Chinese goods and has threatened to place duties on all remaining imports from the country, which last year were worth $505 billion.

In recent months China has repeatedly questioned the U.S.’s sincerity in trade talks, wary of agreeing to something only to have Trump change his mind. While Beijing is open to striking a deal that narrows the trade deficit, officials have resisted Trump’s other demands -- including an end to subsidies for strategic industries, a stop to forced technology transfer and more competition for state-owned enterprises.

Break Logjam

Kudlow said at an event in Washington that Trump and Xi might be able to break the logjam on issues during the summit. But Kudlow cautioned that Trump would “aggressively” pursue his agenda against China if no deals were reached on intellectual property theft, cybersecurity and tariffs on commodities, among other issues.

Trump’s posture toward China has been closely watched by investors, who are looking for the possibility of tensions cooling.

Xinhua, China’s state news agency, reported on Friday that Trump had told the Chinese leader that “he looks forward to meeting Xi during the G20 summit so they can have an in-depth discussion about some major issues.”

--With assistance from Tian Chen, Andrew Davis, Kevin Hamlin, Matthew Boesler, Justin Sink and Toluse Olorunnipa.

To contact the reporters on this story: Jenny Leonard in Washington at jleonard67@bloomberg.net;Saleha Mohsin in Washington at smohsin2@bloomberg.net;Jennifer Jacobs in Washington at jjacobs68@bloomberg.net

To contact the editors responsible for this story: Michael Shepard at mshepard7@bloomberg.net, Mike Dorning, Alex Wayne

©2018 Bloomberg L.P.