trade talks

US-China Trade War | The Negotiators

Check out the Trade Talks Episode Page & Show Notes

Key Takeaways

  • The US-China Comprehensive Economic Dialogue was established in 2017 in order to negotiate a deal and resolve economic issues between China and the U.S.
    • America’s initial head negotiator for the CED was Wilbur Ross with his Chinese counterpart being Liu He
    • After Wilbur Ross crashed and burned, he was replaced by Robert Lighthizer who wanted sweeping trade reform
  • The U.S. was marred by internal disagreements between those who saw China as the greatest existential threat to America (R. Lighthizer, P. Navarro, & M. Pottinger) and those who saw China as one of many problems (G. Cohn, S. Mnuchin, & L. Kudlow)
  • Liu He had much less flexibility for negotiations than his predecessor, the famed Zhu Rongji who negotiated China’s entry into the WTO
    • America’s demands were in opposition to the CCP’s core interests because America wanted to limit Chinese exports which would set China back on its goal of being the world’s leading economic power while during WTO negotiations China was aligned with America
  • “After those discussions fell apart in early May of 2019 things got pretty ugly. We got more tariffs, and for a while, the two sides really stopped talking to each other.” – Chad Bown
  • In January 2020 a Phase One trade deal was eventually signed and gives each American actor a little bit of what they wanted
    • Many of Lighthizer’s desired structural reforms were untouched though.
  • “The process of negotiating this deal may have actually worsened some of the structural problems that its American negotiators had hoped to solve”Chad Bown
    • The CCP has started initiatives to decrease reliance on American technology and strengthen “chokepoints” that may be vulnerable to American sanctions
    • “In China, the trade war of the past two years has really soured many Chinese views of the U.S. just as many Americans’ views of China have turned drastically negative over the past two years” – Lingling Wei

Books Mentioned

Intro

Early Trump Administration

  • The first half of Trump’s presidency was slow on trade policy as Trump was organizing his administration
    • Robert Lighthizer wasn’t confirmed as the US Trade Representative until May 2017
  • Steve Bannon was the de-facto head of trade policy during this transitory period
    • Bannon’s trade strategy involved passing tariffs on steel which will prompt a deal with steel producers, signing a new deal with NAFTA, then signing a trade deal with China from this strong position in rapid succession
  • “Of course none of this came to fruition. It was far too ambitious and they had really no experience of what trade negotiations are really like.”Bob Davis

Comprehensive Economic Dialogue (CED)

  • The US-China Comprehensive Economic Dialogue was established in 2017 in order to negotiate a deal and resolve economic issues between China and America
    • America’s initial head negotiator for the CED was Wilbur Ross with his Chinese counterpart being Liu He
  • “Essentially what the Chinese did was repackage a bunch of offers they had made to previous administrations” – Bob Davis
    • The Chinese concessions amounted to very little yet they were touted as a “Herculean accomplishment” by Wilbur Ross and put on a fast track to signing
    • Lighthizer informed Trump that the Chinese concessions meant nothing which prompted Trump to cancel the deal a day before the signing 
    • “That was pretty much the end of Wilbur Ross as a trade negotiator” 
  • Wilbur Ross was then replaced by Robert Lighthizer as the head negotiator without informing the Chinese 
    • This change was contrary to the standard diplomatic protocol which angered and mystified the Chinese, but it also made them realize they weren’t going to be able to “bluff” the Americans
  • The U.S. side was marred by internal disagreements between those who saw China as the greatest existential threat to America (R. Lighthizer, P. Navarro, & M. Pottinger) and those who saw China as one of many problems (G. Cohn, S. Mnuchin, & L. Kudlow)

Robert Lighthizer

  • Trump’s U.S. Trade Representative was an international trade lawyer who is known for promoting protectionist policies and is especially noted for his defense of the US steel industry, an area very important to Trump
  • Lighthizer is a longtime critic of Chinese economic policy and was thinking about becoming the U.S. Trade Representative for years in order to confront China
    • Lighthizer wants sweeping structural changes in Chinese trade policy while Trump is focused on the US-China trade deficit
  • Lighthizer’s believes structural trade reform would lead to long-term American prosperity and set him up for greater success after his term ends, but Trump’s singlemindedness on trade deficits somewhat impedes that

Liu He

  • Liu He, China’s head negotiator, grew up with Xi Jinping in the same neighborhood and was close to Xi from a young age
    • Both of them came from high-ranking CCP families who were purged during the Cultural Revolution   
  • Liu He is Xi’s top economic advisor and is currently the director of the Central Financial and Economic Affairs Commission
  • “Liu He was basically the perfect choice for President Xi. He speaks amazing English, he is well connected at home, and in the West he was seen as one of these ‘reformers’. The Americans really liked that”Chad Bown
  • Liu He had much less flexibility for negotiations than his predecessor, the famed Zhu Rongji who negotiated China’s entry into the WTO
    • Fulfilling American demands was easier during WTO negotiations because they were aligned with China’s number one priority of integrating itself with the global economy despite the turmoil it caused at home
    • Today, America’s demands are in opposition to the CCP’s core interests because America wants to limit Chinese exports which would set China back on its goal of being the world’s leading economic power

Collapse of Negotiations

  • “Back in late April, early May [2019] there definitely was a sense of optimism in the U.S. about actually having a deal, but the mood in China was decidedly different” – Lingling Wei
  • While China is more autocratic than America, there are still interest groups and constituencies that must be satisfied, especially when considering a huge trade deal
    • China’s leadership wanted at least a majority consensus from the Politburo Standing Committee on the trade deal in order to limit the political blowback from interest groups that would be hurt from a deal
  • The Politburo Standing Committee was evenly split 3-3 which meant it was up to President Xi to be the deciding vote
    • Because time was on China’s side, Xi Jinping asked Liu He to push back on negotiations in order to secure better concessions
  • In China’s culture of bargaining over goods the pushback was seen as part of the normal push-pull of negotiations while Americans interpreted it as the Chinese reneging on previous agreements 
  • “After those discussions fell apart in early May of 2019 things got pretty ugly. We got more tariffs, and for a while the two sides really stopped talking to each other.” – Chad Bown

Phase One Deal

  • In January 2020 a Phase One trade deal was eventually signed that gives each American actor a little bit of what they wanted
    • Trump gets purchase commitments, Mnuchin gets China to refrain from competitive currency devaluation, and Lighthizer gets an enforcement mechanism where he gets to decide if China is holding up their end
    • There are also other agreements regarding intellectual property protection and the removal of some non-tariff barriers, but a lot of the structural issues Lighthizer wanted to tackle was untouched
  • China pushed for a phased approach to the trade deal early on whereas America wanted an all-or-nothing approach; but after the deadlock America agreed on a phased trade deal

Aftereffects

  • “It looks like the Phase One deal is one of the most positive things in the US-China relationship, and that’s a pretty low bar. There are questions, though, about whether some of the outcomes of the negotiation might actually be worse than if it hadn’t happened at all.” – Soumaya Keynes
    • “The process of negotiating this deal may have actually worsened some of the structural problems that its American negotiators had hoped to solve”Chad Bown
  • “In China, the trade war of the past two years has really soured many Chinese views of the U.S. just as many Americans’ views of China have turned drastically negative over the past two years” – Lingling Wei
    • “Initially, a lot of ordinary Chinese really admired President Trump…but not anymore” 
  • To many Chinese, the trade war signified America’s unreliability
    • The CCP has started initiatives to decrease reliance on American technology and strengthen “chokepoints” that may be vulnerable to American sanctions
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Notes By TD

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