China: Talk, but Verify

Published on September 6, 2019

National Economic Council Director Larry Kudlow, when asked in an interview this morning about trade discussions with China, noted that his negotiating counterparts in Beijing had not requested a delay in the October 1 tariffs on Wednesday’s phone call that paved the way for a resumption in talks between the two sides.

Sort of…

** According to senior sources in Beijing, China’s Vice Premier Liu He accepted the invitation to a phone conversation with his counterparts, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, after representations were made and that were interpreted by Beijing to indicate that President Trump might, in fact, lean towards holding off on the next threatened increase in tariffs on October 1 from 25% to 30% on $250 billion worth of Chinese imports.

** But while the US side, according, again, to Beijing, wanted Liu to lead a delegation to Washington as initially hoped in September, from what we understand he turned down that suggestion, given that Beijing felt it was likely that President Donald Trump would then go ahead and slap China with tariffs anyway after Liu’s visit to DC.

** Liu then expressed the view that in order to improve the atmosphere and make good progress before another meeting of the principals, it would be crucial, as has been reported in the press, for deputy level working groups from both sides “to conduct consultations in earnest” in mid-September in preparation for the high-level talks.

** If, as hoped, all goes well in the September deputy talks, Liu will then follow through with a trip to Washington in early October to hold what would be the 13th round of trade talks. In the meantime, both sides have agreed not to announce additional tariff escalations or retaliatory measures through the end of this month.

Chinese officials emphasize that the “consultations” in mid-September will be critical.

China will negotiate with the Unites States, they repeat, on the principle of adhering to China’s “three bottom lines,” and progress can only be made if the US compromises on what had been the highly contentious issue of “enforcement mechanisms” (meaning Trump’s continued threat of tariffs), among other key issues.

And lest the point be lost, sources in Beijing state, with certainty, that if the Trump administration was to go ahead with imposing that next round of tariff hikes in October, Liu will cancel his plans for a trip to Washington in October.

That is precisely why the meeting between principals has been tentatively penciled in for after the October 1 deadline for the next round of tariff hikes.

As Kudlow also said today, the good news is that tempers are clearly calmer now that they were just a couple of weeks ago.And both sides have agreed to “jointly take action to create favorable conditions” for further consultations in October.

But the framework for negotiations now may perhaps be most succinctly encapsulated in that famous phrase coined by President Ronald Reagan during his negotiations with the Soviet Union – “trust…but verify.”

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