Window narrows for Trump trade deals

Window narrows for Trump trade deals
© Getty Images

President TrumpDonald John TrumpTrump faces high stakes in meeting with Erdoğan amid impeachment drama Democrats worry they don't have right candidate to beat Trump Trump threatening to fire Mulvaney: report MORE is facing a crucial stretch for his trade agenda and reelection prospects amid heightened concerns about the U.S. economy.

With a resilient but slowing economy at his back, Trump is approaching a two-week sprint in talks with China and the European Union before a new round of costly tariffs kick in.

Senior U.S. and Chinese officials are set to resume trade talks on Oct. 10 and 11, less than a week before a sharp increase in Trump's tariffs slated to take effect on Oct. 15. 

ADVERTISEMENT

Soon after, White House and European Union officials will have three days to broker a deal to avoid a new tranche of costly tariffs on European goods, which may spur retaliation from the EU.

Trump has long touted his economic leverage over China and the EU, and Friday's monthly September jobs report gave the president a boost of confidence. The unemployment rate sunk to a 50-year low of 3.5 percent last month, even as the economy added 136,000 jobs, fewer than expected. 

“Europe is not doing well. Asia is doing poorly, to put it mildly, and we continue to do very well,” Trump told reporters Friday. “We’re the miracle.”

But with just more than a year until the 2020 election, Trump faces a narrowing window to clinch long-promised victories over China and the EU in trade talks. The president also risks political damage if he fails to accomplish key pillars of his economic agenda or triggers a recession in the process.

And the president's political woes could also affect the economy if the impeachment fight rattles markets or closes the door on Congress approving the new NAFTA deal.

Despite Trump’s bluster, the September report, along with a month of dismal data, made clear the risks the president faces if he further escalates trade tensions. 

Job growth in manufacturing and other trade sensitive sectors has flatlined throughout 2019 as important gauges of U.S. industrial activity showed a grueling retraction. A summer of rising trade tensions and recession warnings have also taken a toll on consumer confidence and spending, which have slipped in recent months.

“What we've seen is a slowdown, but not a collapse so far. So, there is a chill in the air, but it's not frozen yet,” said Diane Swonk, chief economist at Grant Thornton.

“If we don't lift this cloud of trade uncertainty and we compound it with additional tariffs,” Swonk added, “that's going to have more of a snowball effect.”

Trump and Chinese President Xi Jinping have carefully laid the groundwork for a breakthrough next week after several failed attempts to end the costly U.S.-China trade war. After tensions spiked in August, both nations moved to delay pending tariffs and extended goodwill gestures in a bid to revive progress on a deal.

Whether the U.S. and China can extend this progress turns on the outcome of Chinese Vice Premier Liu He’s visit to Washington next week, said James Lucier, managing partner at Capital Alpha Partners, a Washington policy advisory firm.

“Liu He needs to come on Thursday next week with a deal on the table to mean that we can get something done between Trump and Xi by the end of the year,” Lucier said of China’s top trade negotiator.

“So it is make or break, frankly. It doesn't need to be completely done, but Liu needs to make it look credible.”

Trump has repeatedly said that he will not accept anything short of a major expansion in Chinese purchases of U.S. crops, increased U.S. access to Chinese financial markets and greater protections for U.S. intellectual property and technology. 

If Liu fails to appease Trump, tariffs on more than $250 billion in Chinese imports are set to rise to 30 percent from 25 percent on Oct. 15. Another tranche of 10 percent tariffs on more than $125 billion in Chinese products are also set to kick in on Dec. 15, targeting hundreds of crucial consumer goods.

Even so, most observers say Trump will likely be forced to settle for a narrow agreement focused on agricultural purchases, tariff relief and nonbinding agreements on structural issues.

“The only thing that would be possible at this point is a mini deal,” Lucier said.

ADVERTISEMENT

“I think an enforceable commitment in Chinese law, public for all the world to see, is more or less off the table at this point.”

As Trump and China look to bring their trade tensions to a simmer, the president’s conflict with the EU threatens to reach a boiling point. The U.S. and EU are set to meet on Oct. 14, a day before the Chinese tariff hike kicks in, to settle a 15-year dispute over aerospace subsidies.

Trump is set to impose tariffs on Oct. 18 on crucial European exports after a World Trade Organization (WTO) arbitrator issued a ruling Wednesday allowing the U.S. to impose tariffs on up to $7.5 billion in European goods. The president is set to levy 25-percent tariffs on certain European Union agricultural exports and 10-percent tariffs on some European-brand aircraft and parts. 

The decision is meant to resolve a 2004 case filed by the U.S. alleging improper EU subsidies to Airbus, the continent’s top aerospace company. But the White House has exempted major aircraft parts from the tariffs to buffer U.S. airliners and Airbus’ U.S.-based plants from harm.

Instead, the White House targeted an array of iconic European food, wine and liquor exports with steep tariffs, risking blowback from an EU fiercely protective of agriculture products.

"They intentionally try to put on the list things that will get attention,” said Jessica Wasserman, a partner at law firm Greenspoon Marder who represents clients subject to Trump’s tariffs.

“There's nothing sinister about it," Wasserman added, calling it "a good negotiating tactic to get a resolution." 

Wasserman also warned that the situation could escalate. It Trump's tariffs prompt retaliation from the EU, the president may counter with 25-percent tariffs on foreign autos that could be devastating to Europe.

"It'll tempt him to get mad and do something on the autos, and I think they're going to settle down and stop doing that,” Wasserman said, noting it was “surprising” that the U.S. did not simply amp up tariffs on aircraft instead. 

It's the "chaos-as-a-negotiating tactic that Trump loves,” she added.

While consumers have largely been insulated from the direct effects of rising tariffs, the persistent trade tensions and headlines about the slowing economy pose their own risks.

“People just don't know where to place their bets. They don't know whether the road ahead is paved, let alone how far they can move forward,” Swonk said. 

“There's the direct cost of tariffs and the retaliation, those alone are not enough to push you into recession," Swonk continued. "But it's a snowballing effect, and it's that confidence factor that really does get you into a place where you get on thin ice.”

//