And the Beat(ing) Goes On
July 2, 2019I spent this past Saturday writing a column on the International Economic Emergency Powers Act (IEEPA), but once Sunday morning arrived, I realized I should instead comment on the events of last week. So, IEEPA will have to wait for next week.
First up is the news on China. Here, President Trump did pretty much what was expected, to the relief of just about everybody except Peter Navarro, assistant to the president and director of the White House Office of Trade and Manufacturing Policy. The two leaders essentially declared a truce and said they would return to the negotiating table. Trump deferred further tariffs and made a concession on Huawei (see below). Xi, according to Trump but not confirmed by the Chinese, agreed to buy more agricultural products. The only surprise was Trump's failure to impose a deadline on the next round of talks.
The Huawei move remains vague, but it appears that the most likely outcome will be that the United States will extend and expand the Temporary General License to permit U.S. exports to continue to Huawei, although probably not for 5G-related items. A further step would be to remove Huawei from the Entities List entirely, but that is less likely.
Trump's actions, particularly on Huawei, are earning him well-deserved criticism from both the right and left for being soft on China on a national security matter. The most telling comment is that if there really is a national security issue, it should not be a bargaining chip in a trade agreement. This is also just a preview of what he will hear if an agreement is ever reached, as it will inevitably require more U.S. concessions. However, the sighs of relief over tariff postponement are drowning out the more important criticism—the truce solves nothing. The differences that led to the breakdown in May remain, and there is no sign the two leaders discussed in any detail how to reconcile them.
That means we most likely face a rerun of the December-April movie: more talks, presidential tweets of optimism, and ultimate breakdown because the disagreements remain irreconcilable. I've said this before—the president inevitably faces the choice between a weak agreement or continuing the trade war. (Saying "never mind" to the whole thing is not a realistic option.) And either way, he will encounter blistering criticism from both Democrats and security-minded Republicans. He will probably take the weak deal and then try to sell it as the greatest ever. His base may believe him, but here, timing matters. The smart outcome would be to make the deal so close to the election that there won't be time for anyone to see how bad it is or to notice that the Chinese are cheating on it anyway. If he reaches an agreement this fall, there will be plenty of time to discover its flaws before it is time to vote. On the other hand, the president is not a patient person, and dragging out the talks carries its own set of political risks for him. As he says frequently, "We'll see."
The other event last week featured the Democratic candidates for president. Sadly for trade wonks, the topic barely came up. One set of ten was asked what the greatest threat facing the United States was, and many of them said it was China, but there was no time to pursue anyone's reasoning. There was a brief, truncated discussion the second night that did not provide any useful insights. Hopefully, the debates at the end of July will provide more time to get their views on trade and other foreign policy issues that also got short shrift last week. Meanwhile, if you want to know what the candidates are saying on trade, see CSIS's new publication, Trade Policy on the 2020 Trail: The First Debate. Here we do a broad-brush commentary on the candidates' various groupings and provide quotes from all those in the race at the time of publication.
The debates themselves revealed a problem that has plagued both parties for years—the divide between the true believers and the pragmatists. The former have strong principles, defend them vigorously, and often have precious little to show for it. The latter want to get something done and also often have little to show for it. I was fortunate in my Hill career to work for people in the latter category at a time when the Congress worked better than it does now. That was the period author Ira Shapiro called "The Last Great Senate." To be effective, you had to deal respectfully with people you did not agree with and probably did not like—and be comfortable with knowing they probably didn't like you very much either. It took my own boss at the time, John Heinz (R-PA), a while to learn that, but once he did, he became a lot more effective, and the people of Pennsylvania got the benefits. One of the lessons I learned then was that if you let the perfect be the enemy of the good, you end up with neither. That is as important a lesson today as it was 40 years ago, and one all the candidates would do well to remember.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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