A machine loads iron ore into bulk carrier vessels at the Vale SA Guaiba Island Terminal in Rio de Janeiro, Brazil. (Photographer: Dado Galdieri/Bloomberg)

Trump Tariffs: Stopping a China Trade War Before It Starts

(Bloomberg View) -- It may be one of the most opportune flubs in economics.

A slip of the tongue by the U.S. Treasury's top international official offers one way out of the trade skirmish between the U.S. and China. Few serious people want tariffs ordered by President Donald Trump and the Chinese import restrictions imposed in response to degenerate into a trade war that would harm both countries. The trick is to find a decorous way for each side to back off. Maybe that formula already exists in a shelved channel for formal talks between the two nations.

To set the scene, recall an awkward moment that occurred on March 18, far from Washington and Beijing. Treasury officials were in Argentina when they delivered a confusing message about the status of the U.S.-China Comprehensive Economic Dialogue, a long-standing framework for negotiations.

The Comprehensive Economic Dialogue is the latest iteration of a discussion launched with much hype in 2006 by former Treasury Secretary Hank Paulson to provide a formal framework for twice-yearly discussions of economic issues between the U.S. and China. Under subsequent secretaries, the process waned. Reluctant to formally kill it, officials have been wondering what to do with it.

Enter Trump and last week's threat to impose tariffs on American imports from China, apply restrictions on investment in key technologies and address shortcomings in Chinese trade practices. The administration left a few ways out, but resuming the Comprehensive Economic Dialogue didn't appear to be one of them.

David Malpass, undersecretary for international affairs, told reporters in Buenos Aires a few days earlier that Treasury had "discontinued" the dialogue.

But then something odd happened: Malpass reappeared to say, "I misspoke." He added that Treasury Secretary Steven Mnuchin would engage in "high-level" discussions with China. Both men muddied the waters more by refusing to clarify the status of the existing framework for talks. Was it alive, dead or cryogenically frozen? Nobody could tell.

Though the dialogue was a brainchild of the U.S., American officials have grown frustrated that it hasn't yielded a lot. Timothy Adams, who had Malpass's job when Paulson launched the project, doesn't fault the U.S. "They're looking for different ways of bringing about a change of Chinese behavior," Adams, now president of the Institute of International Finance, told Bloomberg News's Saleha Mohsin.

The Treasury officials' mixed message appears to signal that the U.S. is looking for a way to negotiate a deal during the two-month period before a list of products subject to tariffs is finalized and published. That would be consistent with Trump's own praise of Chinese President Xi Jinping at the very March 22 event he used to announce the actions against China.

They just need a structure that's already there so it doesn't look like one is ceding too much ground to the other. There's that Comprehensive Economic thingy they've been pondering what to do with. Just call it something else: maybe the U.S.-China Trade Resolution Forum?

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss writes and edits articles on economics for Bloomberg View. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

To contact the author of this story: Daniel Moss at dmoss@bloomberg.net.

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

©2018 Bloomberg L.P.