Trump Names Price of China Deal; Experts Expect Status Quo Result

Trump, who was speaking on Oct. 19 on Air Force One, said the administration is willing to work on lowering tariffs on Chinese goods "but they have to give us some things too."

At the White House the next day, Trump said, as he had on the plane, that he doesn't want to add 100 percentage points to existing tariffs on Chinese imports.

He said tariffs that high are "a nicer way of saying we don't want to do business with you. I want them to thrive, but we have to thrive together."

He said, "I think that China will come to the table, and make a very fair deal. Because if they don't, they're going to be paying us 155% in tariffs."

The average tariff on Chinese imports is 55%, but some goods face lower tariffs, if they were subject to either 7.5% Section 301 tariffs, or not on a Section 301 target list.

He also said he could cut off the export of airplane parts, which he said grounded more than 400 airplanes the last time he did it.

These kinds of melding of tariffs and export control actions have been a hallmark of the second Trump China trade war.

Former government officials -- a top career negotiator with the Office of the U.S. Trade Representative, and a former assistant commerce secretary for export administration in the Bureau of Industry and Security -- said that deciding to combine the national security issues and trade issues is unprecedented and risky.

Wendy Cutler, the former USTR negotiator, and Chris Padilla, who also later was undersecretary of commerce for international trade, talked about the prospects of a China deal last week for the Washington International Trade Association.

Padilla said the escalation that the Chinese announced, with an extraterritorial export licensing regime for goods containing rare earths processed in China, "shows the risk and the downside of bringing export controls into trade negotiations."

He added, "I think the Chinese calculus is: OK, they're willing to trade these things off. So what we really want is ... no controls on AI chips, and we want to get the lithography equipment which comes from Japan, Europe, and the United States."

He said Chinese negotiators asked for that in Madrid, and were denied. He said their escalation is a bold gambit to hold back rare earths unless the AI chip and advanced chipmaking equipment restrictions are rolled back.

"I think they believe that the president might make that deal, and he might," he said. "We'll find out."

Cutler said she didn't think the Chinese move was done after the BIS 50% rule was announced, but was waiting in a drawer for the right time to drop it.

"They decided to do it now, in my view, not only to gain leverage at this meeting, but I also think that they think that they're in a much stronger position -- that Trump wants this meeting a lot more than they do."

She added: "I do think they overplayed their hand."

Still, she said, understanding that the Chinese thought the previous truces also meant a freeze on export control actions does help U.S. negotiators craft an off-ramp in two weeks. She said she hopes they find one.

Padilla said he had wanted to close the subsidiaries loophole 20 years ago, and he wonders why it was released a month before the summit -- was there not a robust interagency process?

Cutler said she believes that Trump threatened export controls on software, not just 100% tariffs, because his advisers told him that is "where this battle is really being fought," but she also said she thinks Trump's credibility when he makes tariff threats against China is "becoming weaker and weaker."

Moderator Joe Damond noted that Trump backed off from the threat a few days later, and asked if it was the drop in the stock market, or pressure from soybean farmers, that caused that.

Padilla said it's all of the above.

He said if this latest blow-up hadn't happened, the Seoul meeting probably would have extended the tariff truce, which ends Nov. 10, and that maybe China would have agreed to buy some soybeans and airplanes, and make some moves on enforcing fentanyl exports.

Now, he said, he doesn't know what will happen. "It may just be that they meet and agree not to keep escalating."

Damond said he thinks the price the Chinese will extract from the U.S. for buying soybeans "has gone up in part because the president has signaled how important it is politically, and they understand that. And what is the U.S. willing to give to get access to Chinese soybean markets? Do we have to lower our tariffs below the reciprocal rates? Do we have to get rid of the fentanyl tariffs?"

Trump said on Oct. 20 at the White House, "They stopped buying our soybeans, because they thought that was punishment, and it is punishment to our farmers, but we're not going to allow that to happen."

Padilla said that during the first Trump administration, "the Chinese strategy was basically to try to buy them off," with the phase one purchase agreements.

He said clearly they now have a new strategy, "and that new strategy is we have leverage, and we're going to use it. And they've discovered they have very effective leverage, whether it's on rare earths or soybean purchases."

Since Cutler and Padilla expect at most, a status quo outcome with China, they said that puts more pressure on the administration to nail down frameworks with other Asian countries, such as Cambodia, Malaysia or Korea.

Cutler said the U.S. is seeing progress with India, so signaling major progress there could also help.

Padilla said, "If you had told me in January that, in October, we would be having 50% tariffs on India and heading toward some sort of a summit with China, I would have said, 'No, you've mixed the countries up. It's going to be the other way around, right?'"

He said that while Cambodia is important for the apparel industry, most businesses are concerned about South Korea and India. Getting the terms locked down with South Korea and showing progress with India "would be a good result," he said, and signing deals with smaller Southeast Asian countries is "icing on the cake."