As Fear of Trade War Subsides, Evidence President’s Negotiating Style May Be Working

Business

As fears of a trade war between the U.S. and China erupted last week, high-ranking officials from both nations began negotiating possible solutions to a trade deficit President Trump has called “out of control.”

“It’s the largest deficit of any country in the history of our world,” he said last week with regards to the deficit the U.S. has with China.

Last week, the President announced $50 billion in tariffs against China. The White House didn’t disclose which products or industries might be affected but assured the list would be “long.” The taxes are aimed at intellectual property theft and violations of technology transfer agreements that have served as disadvantages for U.S. companies and disagreements, the administration said.

China responded by announcing a 25% tariff on U.S. pork imports and recycled aluminum and a 15% tariff on American steel pipes, fruit and wine. The country said it will also bring cases against the U.S. at the World Trade Organization. “China is not afraid of and will not recoil from a trade war,” China’s embassy in Washington said a statement following the announcement. “China would fight to the end to defend its own legitimate interests with all necessary measures,” it added.

The punch and counter-punch sparked fears of a trade war. The Dow Jones Industrial Average lost 724 points – nearly 3% of its value – the day the Chinese counter-tariffs were announced. Large U.S. manufacturers like Boeing and Caterpillar took heavy losses on fears of slower economic growth and limited global expansion.

But without much publicity, Treasury Secretary Steve Mnuchin and Liu He, Chinese President Xi Jinping’s top economic adviser, have spoken several times over the last several days and are committed, they say, to finding a mutually agreeable way to reduce the U.S.’ trade deficit with China. Liu told Mnuchin during one conversation that he remained hopeful the two nations could “maintain the overall stability of their economic and trade relations.”

Liu was promoted to vice premier during China’s recent legislative session effectively making him the Secretary Mnuchin’s counterpart.

The U.S. sent China specific requests last week to reduce the U.S.’ trade deficit that included reducing Chinese tariffs on American cars, greater access to China’s financial sector for U.S. companies and an increase in Chinese purchases of U.S. semiconductors.

China, in a consent to the request, announced today that it would be purchasing more semiconductors from the U.S. The markets reacted with relief. The Dow closed more than 600 points higher – its biggest one-day percentage gain since August.

Markets were also buoyed by the announcement that South Korea agreed to further open its market to U.S. automakers. Under a renegotiated trade agreement between the two nations, the U.S.’ limit on auto exports to South Korea will increase by 25,000 units.

It was announced last week that South Korea, along with sever other U.S. allies, would be exempted from steel and aluminum tariffs the President announced earlier this month.

President Trump made bringing the nation’s trade deficit into balance one of his main campaign promises during the 2016 presidential election. “Past presidents should never have allowed this to happen,” the President said after signing the memorandum announcing the tariffs. “We got stuck with a lot of beauties, but we’ll fix them.”

In addition to the $50 billion in tariffs that the U.S. has placed on China, the President has also asked the country to reduce their trade deficit with the U.S. by $100 billion.

President Trump hinted at the discussions taking place with the nation last week. “We’ve spoken to China and we’re in the midst of a very large negotiation,” he said. “We’ll see where that takes us.”

“The word is “reciprocal,”’ the President added. “That’s the word I want everyone to remember. We want reciprocal…If they charge us, we charge them the same thing. That’s the way it’s got to be. That’s not the way it is. For many, many years — for many decades, it has not been that way.”

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