China tariffs on hold, Trump adviser says

WASHINGTON -- The United States has halted its plan to impose sweeping tariffs on Chinese products as it presses forward with negotiations to reduce its trade deficit with Beijing, a top priority of President Donald Trump.

"We're putting the trade war on hold," Treasury Secretary Steven Mnuchin said on Fox News Sunday. "So right now, we have agreed to put the tariffs on hold while we try to execute the framework."

Mnuchin said agriculture would be one of the biggest beneficiaries of the negotiations, saying White House officials expect to see a big increase -- 35 percent to 45 percent this year alone -- in U.S. farm sales to China. Mnuchin also forecast a doubling in sales of U.S. energy products to the Chinese market, increasing energy exports by $50 billion to $60 billion in the next three to five years.

Commerce Secretary Wilbur Ross, who has been part of the U.S. negotiating team, will go to China soon to follow up on last week's discussions, Mnuchin said.

Mnuchin said Sunday that the two countries had made progress as they concluded two days of trade negotiations in Washington late last week. The planned tariffs on $150 billion worth of Chinese goods are off the table while the talks proceed, he said.

After finishing the talks in Washington, the two sides released a joint statement Saturday that offered little detail about what had been decided. Mnuchin said Sunday that they had agreed on a "framework" under which China would increase its purchases of U.S. goods, while putting in place "structural" changes to protect U.S. technology and to make it easier for U.S. companies to compete in China.

Larry Kudlow, Trump's chief economic adviser, had signaled last week that China had agreed to increase purchases by $200 billion annually. Mnuchin declined to confirm that figure, which China has called a misunderstanding.

"We have very specific targets; I'm not going to disclose what they are," Mnuchin said. "They go industry by industry."

Kudlow said on CBS that "maybe I got ahead of the curve" on the $200 billion projection. On ABC's This Week, he said the figure he cited last week was a "rough ballpark estimate" that he said both China and the U.S. had used. It is a figure that simply "interests the president a lot," he said.

"They are offering to make structural reforms, such as lower tariffs and lowering nontariff barriers, which will permit us to export billions and billions more goods to China," Kudlow said of China. "That's the elementary point. That's the key point."

The $200 billion figure is equivalent to more than half the $375 billion annual U.S. trade deficit with China -- $377 billion when Chinese services are factored in. Economists say it would be difficult to increase U.S. exports by anything close to that figure anytime soon, given structural hurdles in China and limits to how much and how quickly the United States could increase its production of goods.

China has previously shown little inclination toward a sudden opening of its economy, which relies heavily on state intervention and exports for growth.

Victor Shih, a professor at the University of California in San Diego who studies China's politics and finance, said $100 billion might be a more realistic target.

"A $200 billion reduction would mean a drastic reduction in Chinese exports to the U.S. and a dramatic restructuring of the supply chain," he said.

Sen. Lindsey Graham, R-S.C., praised the administration's efforts with China, which is North Korea's primary trading partner and most important ally.

"It's smart to engage China on trade abuses, and it would also be smart to get them more involved in trying to help us with North Korea," Graham said on Fox News Sunday.

DEBATE OVER ZTE

Mnuchin rejected the notion that the United States as part of the trade talks was revisiting its penalties on ZTE, the Chinese telecommunications company that has been crippled by a Commerce Department ban imposed last month that prevents it from buying U.S. components for seven years.

Mnuchin said there had been no "quid pro quo" relating to ZTE and the trade talks, but that President Xi Jinping of China had asked Trump to consider offering relief to the company, which is accused of failing to punish employees who violated trade controls against Iran and North Korea.

The ban amounted to a death sentence for ZTE, which relies heavily on U.S. parts, and the company announced that it was halting operations. A week ago, Trump tweeted that he was working with Xi to put ZTE "back in business, fast."

Kudlow, in his appearance on ABC, suggested a path that could lead to ZTE's revival, but said it would be arduous.

"If any of the remedies are altered, they are still going to be very, very tough, including big fines, compliance measures, new management, new boards. The question is whether there are perhaps some small changes around the edges," Kudlow said. "I think President Trump is doing this because there's some very good feeling between him and China."

"Do not, please, do not expect ZTE to get off scot-free," he added. "It ain't going to happen."

Sen. Mark Warner of Virginia, the top Democrat on the Senate Intelligence Committee, called Trump's intervention in the case "outrageous" and said that using ZTE "as a bargaining chip ... is not in the best interests of our national security."

The administration would face a "real backlash" if it offers concessions to ZTE as part of the trade talks, Graham told Fox News.

Mnuchin insisted that the Trump administration was not "going easy" on China over ZTE or the trade talks. He said that Trump wanted to be "very tough" on ZTE.

"He could always decide to put the tariffs back on if China doesn't go through with their commitments," Mnuchin said, noting that the Treasury Department is due to unveil Chinese investment restrictions this week.

Kudlow said on CBS's Face the Nation that Trump hasn't completely eliminated the possibility of tariffs.

"I don't think we're at that stage yet," Kudlow said. "Tariffs are part of any negotiation, and tariffs maybe have to be part of any enforcement. You cannot do this kind of major change without using everything that's in your quiver."

Other members of the administration agreed that tariffs are still an option if needed to get China to change its practices.

"As this process continues, the United States may use all of its legal tools to protect our technology through tariffs, investment restrictions and export regulations," U.S. Trade Representative Robert Lighthizer said in a statement. "Real structural change is necessary. Nothing less than the future of tens of millions of American jobs is at stake."

Kudlow stressed that addressing what he called China's "technology stealing" and finding new market openings would both be a boon for American exports, and would benefit Asia in general. Asian stocks were set to start the week higher, and S&P 500 contracts gained 0.7 percent -- an unusually large gain for early Asian trading.

"We made a lot of progress here in Washington and built on what happened in China," Kudlow said. "The president is in a very positive mood about this. I myself am very encouraged."

Information for this article was contributed by Alan Rappeport and Noah Weiland of The New York Times; by Martin Crutsinger and Paul Wiseman and Marcy Gordon of The Associated Press; and by Andrew Mayeda, Mark Niquette, Ben Brody and Elizabeth Dexheimer of Bloomberg News.

A Section on 05/21/2018

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