Thomas Gallatin / Mar. 27, 2018

After Trump’s Tariffs, China Wants to Deal

Rather than igniting a trade war, it looks like Beijing is motivated to negotiate. Art of the deal?

Money talks, and even more so when applied to the realm of the geopolitical. Upon the announcement of China’s new economic trade czar, a spokesman for Treasury Secretary Steven Mnuchin stated, “Secretary Mnuchin called Liu He to congratulate him on the official announcement of his new role. They also discussed the trade deficit between our two countries and committed to continuing the dialogue to find a mutually agreeable way to reduce it.” And there it is — the first crack in the façade of Beijing’s resistance to President Donald Trump and his demand for a fairer trade deal between the U.S. and China.

In introducing his tariff plan last week, Trump expressed his rationale, stating, “The word that I want to use is reciprocal. When they charge 25% for a car to go in, and we charge 2% for their car to come into the U.S., that’s not good.” On Sunday, Mnuchin further explained that the aim of the new tariffs: open more of the Chinese market to U.S. exports, reduce its tariffs on exports, stop requiring that U.S. companies that do business in China hand over their technology to Chinese joint-venture partners, and end the limit on U.S. financial firms to only 51% ownership. In other words, Trump aims to create a more level playing field for fair trade between the world’s two largest economies.

Meanwhile, another positive sign emerged Monday. The U.S. and South Korea reached a new free trade agreement that includes a partial exemption from Trump’s steel tariffs. This fact, coupled with China’s rather measured response to Trump’s tariff announcement and Beijing’s subsequent signal to want to talk about finding a solution, indicates that the tariff threat is indeed working to get a “reciprocal” trade deal. And clearly expressing a willingness to negotiate and avoid a trade war, Chinese Premier Li Keqiang told a conference in Beijing, “With regard to trade imbalances, China and the United States should adopt a pragmatic and rational attitude, promote balancing through expansion of trade, and stick to negotiations to resolve differences and friction.” Hearing this latest news, U.S. markets rebounded from last week’s volatile losses. The art of the deal? It remains to be seen.

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