Trump Administration’s Shift In China Strategy Signals Hope For Deal

Last week’s stock market run that had all major indices ending higher for the year was a welcome respite from the volatility of the last few months of 2018. The optimistic swing began when American negotiators traveled to Beijing in the beginning of the week, signaling momentum in the U.S.-China trade discussion and promise for real progress in 2019.




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That is certainly good news — as the window to the March 1 deadline for negotiations narrows, so too does the president’s opportunity to defray the damage caused by the escalating trade war. While confidence in the economy was shaken by the Administration’s combative stance on trade last year, developments in the new year indicate President Trump is ready to make a deal to restore the confidence and enthusiasm that defined the first two years of his presidency.

Trade Talks: Beyond Tariffs

Evidence of this more focused approach is clear in the administration’s demands that go beyond posturing on tariffs. The U.S. is demanding broader protections of U.S. intellectual property, reforms to Chinese intervention into private business ventures and loosening of restrictions on U.S. capital and investment — commands that loom large as the new deadline for tariffs of March 1 hurdles closer.

If personnel is policy, the most significant development is the handing of talks over to U.S. Trade Representative Robert Lighthizer, who successfully led the NAFTA renegotiations. For the better part of the last year, the administration’s focus on tariffs led by trade advisor Peter Navarro spooked markets and muddied the administrations’ message on objectives.

This shift signals a deal with China is not only possible, it’s in the making. Navarro was the chief architect behind the tit-for-tat tariff fight that has shaken the economic stability Americans enjoyed the last two years. In fact, the cavalier protectionism championed by Navarro has undermined the promises of economic security that catapulted President Trump to the White House.

For example: on the campaign trail, the president cited the trade deficit repeatedly as a product of “unfair” trade.  But recent data shows the Chinese trade surplus with the United States grew to $323 billion, the highest on record.

Blunt Instruments

Tariffs are a blunt instrument, which is why economists agree they are a rarely a strong negotiating tool.  It is telling that the last public comment Navarro was permitted to make was the week before Christmas: known by market observers as the worst week in the stock market since the financial crisis. Navarro’s comments to the Japanese paper Nikkei attempting to significantly depress expectations for a China deal shaved 6.8 percentage points from the Dow Jones Industrial Average and put the Nasdaq in bear market territory, 22% down from its peak.

Tariffs and the damage they wrought to a once-roaring economy could very well come to define the economic legacy of President Trump if a deal is not reached. With Lighthizer now in charge of driving a deal home, expectations are rising ahead of the next meeting between U.S. and Chinese officials at the end of January. China has showed openness to dropping retaliatory tariffs but only a serious negotiator will be able to extract the more durable changes the U.S. is demanding.

As long as the adults who recognize the importance of a U.S.-China trade deal to the president’s legacy are the only ones at the table, anything is possible.

  • Duppler is the senior fellow for fiscal policy at the National Taxpayers Union. She is also the Founder and President of Forward Strategies, a strategic consulting firm.

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