Mnuchin heading to China to avert trade war

Washington

WITH trade tensions mounting between the United States and China, President Donald Trump said he would dispatch Treasury Secretary Steven Mnuchin and other top economic advisers to Beijing next week to try to forestall an all-out trade war.

On Tuesday, Mr Trump said he was optimistic that the United States could reach a deal with China. But he warned that if China did not live up to its promises to open its markets, his administration would proceed with the tariffs he has threatened to impose on as much as US$150 billion worth of Chinese products.

"I think China is very serious, and we're very serious," Mr Trump said between meetings with President Emmanuel Macron of France. "We have no choice but to be very serious." Mr Trump said that the US delegation was making the trip at China's request and that he was heartened by recent remarks by President Xi Jinping, suggesting that he was prepared to open his country's economy to more foreign investment and ease restrictions on imports of American cars.

The two countries have been locked in a battle over tariffs, with the United States threatening to tax Chinese products such as TVs and medical devices and the Chinese retaliating with tariffs on pork and threatening to impose additional penalties on soyabeans and other American goods.

Mr Mnuchin is expected to be joined on the trip by Larry Kudlow, director of the White House's National Economic Council, and Robert Lighthizer, the US trade representative. The delegation comprises a wide range of views on trade, with Mr Mnuchin and Mr Kudlow, a former CNBC economic commentator, more receptive to free trade and resistant to draconian tariffs, and Mr Lighthizer encouraging the president to take a harder line. Peter Navarro, a trade adviser and the author of the book Death by China, may also travel with the group, but an administration official said the details were not yet completed.

Chinese officials have turned to Mr Mnuchin as their primary contact in trade talks, which some observers say may stem from China's perception that he is more sensitive to their concerns. After the formal "economic dialogue" between the United States and China stalled last summer, Mr Mnuchin has held regular discussions with his Chinese counterparts, including Liu He, China's new economic minister.

The Chinese view Mr Mnuchin and Mr Kudlow, who both worked on Wall Street, as potentially more moderate voices who would be more reluctant to start a trade conflict that could damage US businesses and cause stock markets to plunge. They hope the two men will be more sympathetic to offers to open up China's financial market and reduce its trade surplus by making purchases of American natural gas and other products, people briefed on the deliberations said.

Mr Navarro and Mr Lighthizer, meanwhile, have criticised China's offerings and insisted that the Chinese make more sweeping changes to its economy, including removing industrial subsidies and rolling back government intervention in the economy.

The stakes of the trip are high after months of increasing strain between China and the United States. Fears about a trade war between the world's two biggest economic powers emerged in March after Mr Trump unveiled tariffs on global imports of aluminium and steel. The threat of tariffs on up to US$150 billion of Chinese imports followed.

Next month, the Treasury Department is expected to release a plan to further restrict Chinese investment in US companies, including industries such as semiconductors and artificial intelligence that are sensitive for national security reasons. The rules could also restrict US partnerships with Chinese companies abroad.

Some veterans of trade talks with China caution that Mr Trump's approach could backfire.

"I think that it's very dangerous to get into a tit-for-tat war in trade, because even if your goal is to be moderate and proportional in response, one thing can lead to another and it can get out of control," Jacob Lew, the Treasury secretary under former president Barack Obama, told CNBC last week.

However, Paul H O'Neill, who was president George W Bush's first Treasury secretary and travelled to China for talks in 2001, said it was a good sign that the US delegation was making the trip. Negotiations with Chinese officials tend to be well choreographed, he said, so it is likely that the dimensions of a trade agreement are starting to take shape.

"There's already been endless conversations, and tweets, from our side," Mr O'Neill said in an interview. "They are shadow dancing with each other, but behind the scenes where we can't see what is going on, apparently they are making some progress." NYTIMES