Interagency process, mid-December deadline key to U.S.-China deal

The U.S. and China have reached a long-expected ceasefire deal, but as the difficult work of negotiating some form of agreement between the world’s largest economies begins, success will hinge on the Trump administration’s ability to present a united front as it negotiates with Beijing.

One thing has been made clear after some confusion: U.S. Trade Representative Robert Lighthizer, said to be eyeing this as the best chance to force China to change its ways, will lead the talks, the White House confirmed on Monday.

Following a much-hyped dinner meeting between President Trump and Chinese President Xi Jinping, the U.S. agreed to delay the imposition of 25 percent tariffs on $200 billion worth of Chinese goods, which were slated to kick in on Jan. 1 — up from 10 percent today. In exchange, according to a White House statement, China offered to purchase “a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product,” and to “immediately begin negotiations on structural changes,” which are slated to take place over the next 90 days.

U.S. business groups, which abhor tariffs but also say they are getting hurt by Chinese non-market practices, reacted cautiously to the announcement.

The 90-day window is a “reasonable” amount of time for negotiators “to achieve meaningful outcomes in key areas of concern affecting U.S. businesses, such as IP theft, forced technology transfer, and market access,” U.S. Chamber of Commerce Vice President Myron Brilliant said in a statement on Sunday.

“Considering the many and complex issues involved in the bilateral trade relationship, the Trump-Xi dinner results were as good as we could have expected,” William Zarit, the chairman of the American Chamber of Commerce in China, said in a statement to Inside U.S. Trade.

Zarit said AmCham welcomed the 90-day pause while “the two sides try to resolve critical issues through negotiation” and said it was a “plus” that China agreed to buy more U.S. products.

“But probably the most challenging area to resolve — China’s discriminatory economic policies based on state support and domestic market protectionism — need to be addressed in order to level the playing field and have a sustainable commercial relationship based on fairness and reciprocal treatment,” he added.

Sources and analysts are looking ahead to mid-December, when China will commemorate the 40th anniversary of its Reform era — coinciding with the anniversary of diplomatic relations with the United States. If Xi does not announce major reforms on Dec. 18, then the odds of a deal happening are slim, Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies, told Inside U.S. Trade.

“If it turns out that China is just looking to continue to delay, in the hope that the Trump administration’s pressure will evaporate in the face of the weak financial markets or the Mueller investigation, then we are very likely to see the U.S. go forward with higher tariffs on top of the existing ones and perhaps covering a wider range of products,” he added. “China has literally bought itself some time. Let’s see if they use it productively.”

“My guess is that the administration will likely decide to hold on to that leverage pending the outcome of talks in mid-December,” David Shear, former assistant secretary of defense for Asian and Pacific security affairs, said in an interview, referring to the 25 percent tariffs.

China hands long saw this coming. Leland Miller, the CEO of China Beige Book, told Inside U.S. Trade in early November that the markets were poised for “extraordinary exuberance” if the U.S. and China reached a deal at the G20, sketching out the contours of the agreement reached Saturday.

As predicted, U.S. stocks jumped on Monday. The Dow Jones Industrial Average rose 148 points, the S&P 500 gained 0.6 percent and the Nasdaq Composite rose 1.1 percent, according to CNBC. Meanwhile, the Asian market also responded favorably to the truce. MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 0.27 and Nikkei futures — a Tokyo Stock Exchange market index — showed opening gains of about 1.2 percent, Reuters reported on Monday.

Additionally, after Trump tweeted on Sunday that “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%,” General Motors, Ford and Tesla shares rose by more than one percent, CNBC reported.

For a deal to be made, though, the administration must get on the same page, sources said.

“It’s very important that the Trump administration use this new window to get itself organized and figure out once and for all if it wants a deal with China, and if so, what its core contents would be,” Kennedy said. “It would be helpful if this team of rivals would become a team and if a genuine interagency process would begin to operate it. If China signals that it is serious about reform, the U.S. will need to be ready for an in-depth and comprehensive negotiation process.”

The players are familiar. President Trump on Friday said National Economic Council Director Larry Kudlow’s representatives were “dealing with them [China] on a constant basis.”

“Vice Premier Liu He, with whom we’ve had quite a bit of contact with, he’s a very smart guy. I hate to say it, but I like him,” Kudlow told reporters at the White House ahead of the summit.

But standing between Trump and any superficial deal with China is Lighthizer, who sees this as his best chance to force real change in China’s behavior, Ashley Craig, a partner with the law firm Venable, said in an interview.

Lighthizer, he said, thinks “We’ve got them in a position where we have high ground, we need to extract maximum reward, and are we really going to get it right now?”

White House trade adviser Peter Navarro, seen as simpatico with Lighthizer on China, said Monday on NPR that Lighthizer is “the toughest negotiator we’ve ever had at the USTR,” Navarro said. “And he’s going to go chapter and verse and get tariffs down, non-tariff barriers down, and end all these structural practices that prevent market access.”

But Treasury Secretary Steven Mnuchin told CNBC on Monday that Trump would lead the negotiations, along with an “inclusive team” including himself, Lighthizer, Kudlow, Navarro and Commerce Secretary Wilbur Ross

“And we also have people from agriculture and energy,” Mnuchin added.

“It’s quite clear that there’s a big division of opinion between Kudlow on one side and Lighthizer and Navarro on the other. Lighthizer and Navarro are probably less interested in a deal than economic adviser Kudlow is,” Shear said.

Former USTR negotiator Kellie Meiman Hock said in an interview that Kudlow’s involvement was “obviously a positive,” characterizing him as “certainly one of the more moderate voices.”

There is still a question as to whether tariffs can be legally delayed, but a case is unlikely to be brought against the decision.

“[W]ho will complain if they are left at 10%?” former USTR general counsel Jennifer Hillman said on Twitter. “If, after 90 days, they do go up to 25%, then lots of process questions likely.”

Lighthizer recently issued an updated Section 301 report in part to stave off any legal challenges against the tariffs, sources say.

Trade lawyers told Inside U.S. Trade that various cases could be brought to the Court of International Trade. Arguments could be made that the administration does not have the authority to modify remedies indefinitely, that it should have exhausted all available options at the World Trade Organization, or that the statute itself is unconstitutional under the so-called “non-delegation doctrine.”

But prevailing in court will be tough, Craig said, calling Lighthizer a wily practitioner with a steel-trap mind honed by decades representing the industry.

“Ambassador Lighthizer is gifted in ways that only a few in terms of the trade bar are, having been groomed in the early ‘80s in the Reagan White House and doing battle against the Japanese and then having spent the next 35 plus years in private practice defending U.S. domestic concerns primarily steel-related,” he said. “He is a truly gifted practitioner and knows the trade laws in ways that very few do, so he’s got that advantage, but ultimately it comes down to there being deference given to the administration under the statute.”

“I would say that in some general sense, the administration’s actions are ‘arbitrary,’ but in a more technical, legal sense, I’m not so sure,” said Simon Lester, associate director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies. “They put a lot of thought into justifying their actions. I don’t know that a court would find a violation here.”

If the U.S. and China do strike a deal, Shear said he did not expect “big Chinese concessions” on intellectual property protection or industrial policy, which he called “a Chinese family jewel which they’ll be very reluctant to alter substantially.”

And “even if the Chinese put in adequate regulations in place [for IP], it’s going to be hard for the Chinese to guarantee effective implementation throughout the Chinese economy,” Shear added. “So even if the Chinese were sincere in implementing IP protection reform, it’s going to take a long, long time for them to implement it.”

Yet, for “everyone in the private sector,” Meiman said, “the real issue is Chinese IP rights protections.”

Eventually, politics will get in the way as well, analysts have said.

“While a ceasefire is welcome, questions remain. What exactly were the terms of agreement? How will we measure success? What is the plan to solve China’s constant disregard for U.S. IP rights holders? I will watch for answers, but so far I hear crickets,” Rep. Bill Pascrell (D-NJ), ranking member of the House Ways & Means committee trade subcommittee, said in a statement on Sunday. “Neither Trump’s bellow Saturday night about terminating NAFTA to pressure Congress nor the President’s negotiating skills on China impress me. I’ll be watching whether this truce actually delivers or if Mr. Trump will just blow things up again.”

The presidential race could also be a determining factor in the longevity of any deal, Derek Scissors, a China analyst with the American Enterprise Institute said in June.

“The president has a special liking for autocrats,” Sen. Sherrod Brown (D-OH), who is reportedly mulling a 2020 presidential run, told Inside U.S. Trade ahead of the Trump-Xi meeting. “He likes Duterte and he likes the Crown Prince of Saudi Arabia, he loves Putin. He’s not so friendly to our allies, democratically elected leaders, so I think he’ll get along fine with Xi. Whether he sells us short as he has with Putin and Saudi Arabia is another question.” — Anshu Siripurapu ( and Maria Curi (