Lucy Hornby and James Politi
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Dear readers, welcome to FT Free Trade 2019! It’s all kicking off with a bang, as US negotiators are in China to try to set the stage for a lasting peace between the two giant trading nations and strategic rivals. Here’s our dispatch from Lucy Hornby in Beijing on how the Chinese see things . . .
The Chinese have been curiously optimistic ahead of trade talks in Beijing this week. The reason may seem counter-intuitive, but here goes: Robert Lighthizer, the brains behind Donald Trump’s tariffs, has been designated point person for negotiations. He is tough, but China finally knows it is talking to someone with authority.
“At least a formal, clear negotiating representative has been set up by the US,” said Arthur Kroeber, of China-focused consultancy Gavekal Dragonomics.
Mr Lighthizer, whose aversion to travel is well known, is not in Beijing, but his spirit will be. Leading the US delegation is Jeff Gerrish, his loyal deputy and fellow alumnus of Skadden Arps, the law firm, where they together waged many battles on behalf of the US steel industry against Chinese competitors.
Elevating Mr Lighthizer rewinds the clock to the Clinton administration, when US trade representative Charlene Barshefsky negotiated with China the terms of its accession to the World Trade Organization. She remains well respected in Beijing for being tough but fair.
Lead Chinese negotiator Liu He had been asking for a point person since last March. After Mr Trump scuppered a 2017 deal by commerce secretary Wilbur Ross, Beijing attempted to negotiate through Treasury secretary Steven Mnuchin, while reaching out to other Goldman Sachs alums.
Beijing had correctly noted that Wall Street is far more kindly disposed than economic nationalists such as hawkish Trump adviser Peter Navarro, author of Death By China , but needed to have a better grip on where it stood. In appealing to the Treasury department the Chinese were faithful to the Strategic Economic Dialogue architecture set up during the Bush administration and expanded under Barack Obama. But critics argued that the format had become bogged down in incremental items, and the Trump administration ditched it.
While Mr Lighthizer drives a much harder bargain than the Goldman crowd, at least if he agrees to a deal the Chinese side can be confident it will stick. Focusing the broader dispute back on to trade-specific issues suits Mr Liu, whose immediate goal is to prevent any escalation in tariff rates while chipping away at tariff categories.
But Beijing should beware of becoming too fixated on a narrowly defined agreement in the interests of allowing Mr Trump and his Chinese counterpart Xi Jinping to declare a short-term win. That would leave the field open for future pressure from Mr Lighthizer, whose broader goal is to bring US manufacturing back onshore.
Now that the US side has cleared things up, a similar question might arise regarding who speaks for China. Mr Trump and Mr Lighthizer plan to travel to Davos this month for the World Economic Forum, where they will find Chinese vice-president Wang Qishan.
“Wang Qishan’s expertise on the US is responding to accommodative American policy. It’s not clear he can handle a more antagonistic, if uneven, US approach,” said Derek Scissors at the American Enterprise Institute, a Washington think-tank.
Mr Wang has traditionally been the main conduit for Wall Street in Beijing, and is said to be advising Mr Xi in a broader strategic role vis-à-vis the US. But Chinese officials privately indicate uncertainty about his precise role in the trade negotiations, and some caution that he is less visible internally than the Americans believe.
Ultimately, the chances of a deal will come down to Mr Trump and Mr Xi — the two presidents who triggered the escalation, then opened the door to a truce, and are now trying to see if they can forge a lasting peace.
Will this year deliver a softening of Mr Trump’s trade policy, asks James Politi.
As the next round of talks with China takes shape, amid volatility in financial markets and growing fears of an economic slowdown, there is mounting pressure on Washington to avoid a trade-related meltdown that could damage Mr Trump politically heading into his re-election campaign.
Since the gap between US demands and Chinese concessions is still wide, any agreement would need to involve some leeway from Mr Trump. And there are other big signposts, too.
By February 17, the US commerce department will have to judge whether car imports pose a risk to national security. The Trump administration has shown some signs of having second thoughts about imposing car tariffs, which would do considerable harm to the EU and Japan. Pulling back entirely would be a significant de-escalation.
Finally, watch Mr Trump on Canada and Mexico. The US and its neighbours are still discussing lifting US steel and aluminium tariffs, and a deal would be a significant olive branch from Washington.
But more importantly, the US will have to decide whether to threaten to withdraw from the existing Nafta trade deal in order to force recalcitrant Democrats to approve the USMCA revision negotiated with Ottawa and Mexico City last year. That would be the nuclear option. Should the US decline to use it, it would be another sign that the Trump administration’s most aggressive days on trade could be behind us for the time being.
A former US trade official said that with signs of trouble for the economy, and the 2020 campaign ahead, Mr Trump may not have the latitude to ratchet up further antagonist trade measures. Then again, with this president, nothing is certain.
The UK has become more dependent on EU imports, just as Brexit looms and shortages are feared. (panjiva.com)
The number of manufacturing jobs created in the US last year, which the US trade representative touted on Friday as the biggest increase in 21 years and evidence that the administration’s trade policies were working.
The world is unprepared for a slowdown, warns David Lipton of the IMF (FT)
Cfius is tougher but more transparent (Forbes)
How tariffs are hurting some in the American heartland (NYT)
Bill Reinsch dissects how trade is playing in Congress and with the US political parties (CSIS)
The faulty premise behind Trump’s trade war (Free Lunch, FT)
US-China: farmers count the cost of the trade war (FT)
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Thanks for reading,