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Chinese Commerce Ministry Requires Phased Tariff Roll-back to Advance any Trade Deal….

Chinese Commerce Ministry Requires Phased Tariff Roll-back to Advance any Trade Deal….

There is a lot of banter amid the punditry class of trade and finance watchers surrounding a statement from Chinese Commerce spokesman Gao Feng claiming that U.S. and China negotiators were discussing a ‘phased’ roll-back of U.S. tariffs as part of a trade deal. However, a note of very strong caution should be applied.

On its face the Beijing-central claim is essentially an accurate portrayal of a dynamic long discussed.  The tariffs were initially imposed to reset the outlook of China.  In any negotiation with China a concession of current status is a non-starter.  By natural disposition Beijing refuses to cede already won ground. This is their historic approach.

Therefore when engaging in any negotiations with China it is necessary to reset the baseline.  China has to naturally feel losses; the economic landscape must be changed around them without their participation; in order for for them to consider negotiation.

The punishing U.S. tariffs accomplished this objective; the Beijing baseline status has been changed.  The bamboo forest is significantly less than it was two years ago, and now China wants to recapture lost position. Their current status indicates exactly that dynamic.

Beijing is proposing acceptance of U.S. demands, but only if that acceptance also delivers a removal of the tariffs that created their diminished status.

USTR Lighthizer isn’t stupid, he’s not going to give back two-years of hard won position.

While they hate it, Beijing internally also understands the U.S. position, this is why they consider Trump such a formidable adversary.

So the latest position from Beijing is to say “a phased reduction in tariffs”, in exchange for a “phased acceptance” of terms.  From the Chinese position, they view this as their version of how they project the Western mindset of win-win into the negotiations.

None of the principals can say this directly; to make such an admission would be akin to losing face amid a history of thousands of years of specific Chinese strategy.  So they send out spokespersons to promote such a proposal.

Anyone who has an understanding of the Chinese outlook should take all of the media reporting on this with a grain-of-salt.  Beijing uses spokespersons as panda masks, and Team Trump know the distance between the Chinese principal and a Chinese spokesperson is part of their strategy.  The unspoken space between words is more important than the words themselves.  Inside this space is where cunning exists.

Regardless of the proposal, if it doesn’t come directly from a principal it doesn’t exist…. it is a false promise, or more panda mask.

This is what happened when the May 2019 talks collapsed.

Special trade envoy of Chairman Xi, Vice-Premier Liu He, quickly turned from a principal to a panda mask as soon as Beijing weighed in -and rebuked- Liu He’s negotiated terms.

Vice-Premier Liu He was stripped of his “special envoy” designation; and Beijing used the distance they just created with He as the justification for dismissing the May ’19 terms of agreement.  That example was very typically Chinese.

The point is, Beijing does not want to accept any new terms that diminishes their prior one-sided benefit.  China is communist, they don’t have a direct constituent group they are accountable to…. they are willing to incur suffering so long as they don’t lose position.

Losing less is not considered a position of benefit.  China cannot even contemplate such a position; it just isn’t done.  So any and all reporting on the discussions should be viewed through the prism that any deal is almost impossible to assemble unless, somehow, Beijing can view a deal as a win.   That is a deal President Trump is not going to accept.

(Via Reuters) […] The interim trade pact is widely expected to include a U.S. pledge to scrap tariffs scheduled for Dec. 15 on about $156 billion worth of Chinese imports, including cell phones, laptop computers and toys.

Tariff cancellation was an important condition for any agreement, Chinese Commerce Ministry spokesman Gao Feng said, adding that both must simultaneously cancel some tariffs on each other’s goods to reach the phase one pact.

“The trade war started with tariffs, and should end with the cancellation of tariffs,” Gao told a regular news briefing.

[…]  “There is no specific agreement for a phased rollback of the tariffs,” said Michael Pillsbury, an outside adviser to Trump. “The American side has been ambiguous when and which tariffs will be lifted. The Chinese have some wishful thinking and are trying to soothe their domestic hardliners that the tariffs will someday come off.”

Trump last month outlined the first phase of a deal to end the trade war with China and suspended a threatened tariff hike, but officials on both sides said then that much work needed to be done before the pact would be finalized.  (more)

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Published at Thu, 07 Nov 2019 22:14:56 +0000