China Detente Hailed by Industry, Though Some Skeptical; No Third List Exclusions Planned for Now

(UPDATE: The White House issued a subsequent update that the 90 day period would run from Dec. 1 (see 1812040010). In his initial remarks, Kudlow had misstated that the period would run from Jan. 1.)

Kudlow said he doesn't think there will be a possibility for importers on that third list to apply for exclusions as long as the tariff rate stays at 10 percent. "It's not relevant as long as the freeze of 10 is in place," he said in response to a question from International Trade Today. The administration is "pretty close to some agreements on the [intellectual property (IP)] theft," Kudlow told reporters on a conference call Dec. 3. "We're pretty close to some agreements on the forced transfer of technology for American companies." He also said the Chinese are agreeing to address hacking and cybersecurity.

Kudlow said the kind of commitments the Chinese are making are in a wholly different category from the way China was negotiating in the spring, when he and Treasury Secretary Stephen Mnuchin thought they might have reached a deal in the trade conflict. That deal was largely trying to increase U.S. exports to China, to narrow the trade imbalance between the two countries. "If I'm going to be wrong, maybe I'll be wrong soon, or we may all be pleasantly surprised," Kudlow said. Kudlow also described as groundbreaking the G-20 countries' communique. That document said the World Trade Organization needs improvements if it is going to function well.

Phil Levy, a senior fellow on the global economy at the Chicago Council on Global Affairs, is not expecting to be pleasantly surprised in March. "Man, are people gullible," he said in an interview Dec. 3. "Do we never learn?" His advice to importers: "Get that spring line in quickly." While he said retailers would rather have a few months of lower tariffs than not, the uncertainty for the trade business is far from over.

Edward Alden, senior fellow at the Council on Foreign Relations, said he wasn't surprised President Donald Trump put the trade war on pause. "He’s troubled every time the market drops, and it’s pretty clear the markets were hoping for exactly the outcome he brought back from Argentina," he said in an interview Dec. 3. "It underscores again that while Trump is willing to do things on trade that presidents haven’t been willing to do for years, the tough tactics have their limits."

He said this pause is not because the two sides have agreed to any kind of framework, it's just an agreement to talk. "What happens in 90 days when there’s no agreement? Because there won’t be in 90 days," he said. "One is you keep kicking the can down the road. The next 90 days becomes another 90 days after that becomes another 90 days."

He said a second possibility is that there's some kind of incremental progress -- China has lowered tariffs on some U.S. goods, and liberalized investment somewhat -- and that gives another reprieve, which in turn leads to another bit of progress. He said that's the best outcome that could be hoped for. If that is to work, he said, some of the tariffs now in place on Chinese imports will be reduced.

"It’s hard for me to think the Chinese would do anything significant without at some action on the U.S. side, some rollback," he said. China is not as desperate as Mexico and Canada, he said, who wanted NAFTA so badly they were willing to sign with the steel and aluminum tariffs still in place.

"Scenario three: it crashes and burns, you get no deal in 90 days," Alden said. Will the administration follow through with higher tariffs on the $200 billion then? Or levy tariffs on all Chinese imports? Alden isn't sure. He said that so far, the tariffs are cutting into imports when they are at 25 percent, but because of the strong economy and the fact that the first two lists were mostly inputs, there wasn't any real political cost to their imposition. He said the 10 percent tariff, especially given the Chinese currency's slide, isn't big enough to really bite consumers. But, he said, "I think that the president recognizes that each escalation of tariffs from here on in gets harder."

House Ways and Means Trade Subcommittee ranking member Bill Pascrell, D-N.J., reacted to the news from Argentina on China by saying: "It turns out trade wars aren’t easy to win. 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."

Trump then tweeted Dec. 3 that China will be dropping its tariff on U.S. autos. Kudlow said, "We don't have a specific agreement on that," but added that "we expect those tariffs to go to zero." Currently, China charges a 15 percent tariff on autos imported from the rest of the world, but a 40 percent tariff on U.S. vehicle imports, in retaliation for America's tariffs.

Alden said he doesn't think Trump is as likely to do the kick-the-can tactic again. "I think they’re going to need to show some kind of progress after 90 days, unless they’re going to be accused [by Democrats] of fecklessness and letting the Chinese run out the clock on them."