Trade Deal Near with U.S. Easing Sanctions on ZTE, China Easing Ag Import Restrictions

Posted on 05/15/2018 4:31 AM

China's top economic envoy arrives in Washington with trade deal announcement possible

 

U.S. and China are putting the final elements together for a potential deal on ZTE and agricultural tariffs as China's chief economic envoy, Liu He, arrives in Washington to reportedly discuss the tentative U.S.-China trade deal. An official announcement of an agreement could take place while Liu visits the nation's capital. It appears China demanded the U.S. consider easing the sanctions on ZTE before China leader Xi Jinping approved Liu's journey to America.


Background. The U.S. and China are nearing agreement on a deal that would give China’s ZTE Corp. a reprieve from significant U.S. sanctions in exchange for Beijing removing tariffs on billions of dollars of U.S. agricultural products, including pork and sorghum, and to pull back on any threatened sanctions on U.S. products, including soybeans, and for China agreeing to buy more American products. Under the tentative deal, China would also ease some nontariff restrictions on American farm products, including modifying tightened quality testing for U.S. soybeans, which have led to the crop getting held up at Chinese ports.Portions of the near-accord were first reported by the Wall Street Journal.

China has agreed to restart its regulatory review of Qualcomm’s bid to acquire NXP Semiconductors, which had been put on hold amid trade friction.

 

The surprising turn of events began Sunday with a tweet from President Trump who wrote that he was working with Chinese President Xi Jinping to get ZTE “a way to get back into business, fast. Too many jobs in China lost.” He said the Commerce Department has been instructed to “get it done!” Trump’s tweet surprised many among his top officials, with no interagency discussions on the policy U-turn. In another post on Twitter on Monday afternoon, Trump said lifting the restrictions on ZTE would benefit the United States because the company buys many of its components from American manufacturers.

 

Besides Trump, Treasury Secretary Steven Mnuchin has been leading discussions recently with Chinese officials in Washington. Mnuchin also held private discussions with Chinese officials while he was recently in Beijing.

 

Trump and Chinese leader Xi Jinping spoke by phone on May 8, and then senior Chinese officials led by Vice Minister of Commerce Wang Shouwen met at the Treasury Department on Friday, where the ZTE issue was again raised.

 

Others on Trump team surprised, in discord. The aggressive trade policy members of President Trump's team, including U.S. Trade Representative Robert Lighthizer, were unaware of Trump's abrupt change, and their potential disagreement is a major fissure point within the Trump administration and the matter could still fall part amid internal rancor.

 

GOP lawmakers also surprised. Senior Republicans said they were caught off guard by President Trump’s ZTE tweet, with neither congressional leaders nor the heads of the Senate Finance and Foreign Relations committees receiving warning that the administration was contemplating lifting restrictions on the Chinese tech giant. “I’m kind of surprised, considering the decisions that were made previously on national security; it kind of surprises me, and I haven’t figured it out,” said Sen. Chuck Grassley (R-Iowa), a senior member of the Finance Committee. “The two opinions are kind of in conflict with each other.” Senate Majority Whip John Cornyn (R-Tex.) said the issue of relaxing penalties against ZTE could arise when Trump lunches with senators today.

 

Ross mulling alternative punishments for ZTE. Commerce Secretary Wilbur Ross said at the National Press Club on Monday that he is considering alternative punishments for ZTE, if enacted opening the door to a reprieve for the telecom company. Ross said the Commerce Department would consider the question of easing ZTE penalties “very, very promptly.” White House deputy press secretary Raj Shah on Monday said: “The president has asked Secretary Ross to look into it consistent with applicable laws and regulations.” He added, “It’s been brought up at a number of levels as part of bilateral talks on a number of issues.” Ross tried to downplay any connection between the talks and ZTE. “Our position has been that's an enforcement action separate from trade,” he said.

 

In his remarks, Ross was coy about the ZTE situation, noting that the U.S. knows "even more about the situation than the leaks would let on... The part that would be interesting is classified."

 

China has a lot more to lose than the U.S. from a trade war, Ross said Monday. Ross was upbeat that the U.S. and China “can make a fair deal,” but also noted that if they fail, “a trade tit-for-tat will not be economically life threatening to the United States.”

 

As for China, its state-run press applauded Trump’s about-face. “We highly appreciate these positive remarks on the ZTE issue, and we are currently in close communication with them on how exactly to implement it,” said Lu Kang, spokesman for China’s Foreign Ministry. “As for the specific issues over which the U.S. side has voiced its concerns, our two sides also maintain close communication.”

 

Washington and Beijing are still "very far apart" on trade, U.S. Ambassador to China Terry Branstad announced as the trade talks kick off today. In comments in Tokyo, Branstad said China was "taken aback" at the list of demands presented by US officials earlier this month, according to a Reuters recap of his remarks. "The Chinese have said 'we want to see the specifics.' We gave them all the specifics in terms of trade issues. So, they can't say they don't know what we're asking for," he said. "We're still very far apart." He noted several areas where China has agreed to take actions but has not yet done so. "We want to see a timetable," he stated. "We want to see these things happen sooner than later." The U.S. also wants China to open its markets more to U.S. products like food, with President Trump wanting a "dramatic increase" in U.S. food shipments. As for the proposed duties on Chinese goods via Section 301, Branstad said the U.S. could rescind those tariffs if China moved to open its agriculture and auto markets. "I think it could be adjusted," he said. "It's possible, depending upon how the trade talks go." Observers wondered whether Branstad's comments were cover for the talks or just that he may be out of touch on the latest developments. “A bit of both,” said one observer.

 

Perspective: Domestic U.S. politics is an apparent factor behind the Trump change, as he and other Trump administration officials, and GOP lawmakers, fret that a backlash among U.S. farmers to counter-tariffs could endanger Republican efforts to keep control of the House and Senate in midterm elections.

 

The Wall Street Journal in a commentary today wrote, “So the U.S. is giving a reprieve to ZTE in return for China lifting tariffs it imposed in response to misguided U.S. tariffs. In other words, Mr. Trump is undermining U.S. credibility on sanctions in order to dodge tariff retaliation on the U.S. Farm Belt that Mr. Trump invited with his protectionism. Meanwhile, there’s no sign so far that Mr. Xi is bending on IP theft or other predatory Chinese behavior.”

 

However, on Monday, the White House denied that accommodating China’s concerns represented a broken promise by Trump to protect America’s interests, saying that the relationship with China was complex. “He’s been tough and he’s confronted them,” said Raj Shah, the deputy press secretary.

 

Meanwhile, there is clearly a North Korea summit issue connection with the Trump maneuver as any U.S./China trade accord would remove or significantly lessen a major source of tension between the two countries as Trump on June 12 is scheduled to meet the North Korean leader, Kim Jong-un, at a landmark summit meeting in Singapore. Trump has made China’s president, Xi Jinping, his partner on North Korea. On Sunday, Trump described the ZTE move as part of “the larger trade deal we are negotiating with China and my personal relationship with President Xi.” China, as North Korea’s neighbor — with over 900 miles of shared border — and its largest trading partner, will play an influential role in the U.S./North Korea talks.

 

 

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