When US President Donald Trump signed a new law last week authorizing Washington to level sanctions against Chinese officials over human rights abuses in Hong Kong, he did so knowing the move would likely hinder his administration’s stated goal of sealing a “phase one” trade agreement with China that has thus far proved elusive.
The leaders of the world’s two largest economies say they want to end a 17-month tariff war that has stunted global growth, rattled supply chains and left investors hedging their bets. Trump’s remark on Tuesday that a trade deal may have to wait until late 2020, after US presidential elections, has sent markets swooning, ending a spell of market optimism that a deal would be reached within this month.
“I don’t have a deadline…In some ways, I like the idea of waiting until after the election for the China deal,” Trump was quoted saying while in London ahead of a NATO summit. No high-level meetings with Chinese officials are scheduled, the president claimed.
Adding to the pressure is separate new legislation to sanction Chinese officials involved in the internment of Uighur minorities in the country’s Xinjiang autonomous region. Lawmakers in the House of Representatives nearly unanimously passed the Uighur Intervention and Global Humanitarian Unified Response Act of 2019 on December 4.
The US Senate in September swiftly approved an earlier version of the bill in a further show of bipartisan consensus on sanctioning China in an otherwise bitterly divided Washington. The Senate must either pass the latest iteration of the Uighur bill in its current form or request changes before it reaches the president’s desk to be signed into law.
Trump, having begrudgingly signed the Hong Kong bill after it passed both houses of Congress with veto-proof majorities, conceded it would make a deal with China harder to achieve. “It doesn’t make it better,” he said, after earlier claiming some of the bill’s provisions “interfere” with the president’s executive powers to conduct foreign policy.
Apart from human rights-related sanctions, the newly passed law requires the State Department to annually certify that Hong Kong retains sufficient autonomy to continue qualifying as a separate customs and trading zone from mainland China under US law. Hong Kong’s chief executive Carrie Lam has called the measure “wholly unnecessary.”
“I signed these bills out of respect for President Xi, China and the people of Hong Kong,” said Trump in a statement worded to soften the corollary of countermeasures from Beijing and keep phase one negotiations on track. Though both sides have tried to keep non-trade issues from affecting deliberations, the new US law may have been a bridge too far.
A report from news website Axios cited an anonymous source close to Trump’s negotiating team who claimed plans for a trade deal have now “stalled because of Hong Kong legislation” and that a longer timeline would be needed “to allow Xi’s domestic politics to calm.” The latest remarks from the American president appeared to confirm that.
The likelihood of new tit-for-tat duties being leveled later this month is now rising. Fifteen percent tariffs on US$156 billion of Chinese imports including smartphones, laptops and other consumer goods are set to take effect on December 15, though some analysts had expected Trump hold off on the increase to move negotiations along.
Beijing has said it would respond to the new December 15 tariffs with duties of its own on $75 billion worth of US goods, including soybeans, a move that would further sting rural American farmers in states seen as crucial to Trump’s re-election bid. The president last week bypassed Congress to hand out $20 billion worth of bailouts to farm states.
“The Hong Kong legislation will almost certainly complicate – and likely delay – conclusion of the phase one negotiations. It is unclear however if China’s displeasure with the legislation will be sufficient to entirely scuttle the deal,” Stephen Olson, a research fellow at the Hinrich Foundation, a philanthropic organization advocating for sustainable global trade, told Asia Times.
“The fact of the matter is that all of the economic logic in favor of reaching a deal and forestalling further tariff increases remains in place” Olson said. “Both countries are suffering economic damage as a result of the tariffs, so there is a strong mutual incentive to reach a ceasefire agreement.”
Steven Okun, a senior advisor at trade consultancy McLarty Associates, echoed those views, saying it remains in both countries’ economic interests “to find an off-ramp to the trade war.” A phase one deal “remains possible” despite the Hong Kong bill, he says, noting that China has opted to make its displeasure known “outside the trade negotiations.”
Beijing has hit back against Trump’s signing of the Hong Kong bill by suspending visiting rights for US Navy warships, which regularly make rest-and-recreation port calls in the Chinese-ruled city. American naval vessels were previously denied docking access in August following Chinese accusations of a US “black hand” in orchestrating Hong Kong’s protests.
China’s foreign ministry accordingly leveled sanctions against US-based non-governmental organizations (NGOs) including the National Endowment for Democracy, Human Rights Watch and Freedom House for allegedly encouraging anti-government demonstrators in the city to commit violent acts, a claim for which it did not present corroborating evidence.
“Finding a ‘win-win’ upon which both Presidents Trump and Xi can agree remains difficult because the US wants China to address certain unfair trading practices before rolling back any of the existing tariffs,” Okun told Asia Times. “For President Xi, this is politically difficult, if not impossible.”
China wants tariff relief to be part of a phase one deal, with Xi himself saying that the agreement must be based on “equality.” Trump, however, maintains that a deal should favor the US. “I told President Xi, ‘This can’t be like an even deal. We’re starting off from the floor and you’re already at the ceiling,’” he said in a Fox News interview last month.
US Commerce Secretary Wilbur Ross suggested earlier this week that US negotiators were not yet satisfied with what Beijing had brought to the negotiating table, saying progress has been “one step forward, one step backward.” Holding back on the December 15 tariff hike would depend on “[Beijing’s] behavior between now and then,” he was quoted saying.
“If the two sides remain in negotiations through December 15th, the tariffs are likely to be delayed up to Chinese New Year to see if some compromise can be reached in which each side can sign an agreement which can plausibly be trumpeted as a victory for the respective domestic audiences,” Okun told Asia Times.
“Until President Trump provides President Xi a win-win, or at such time as President Trump is willing to rollback existing tariffs in a phase one deal – one in which China does not undertake structural changes to its current economic system – the trade war will likely persist unabated,” the McLarty Associates senior advisor added.
Olson, for one, believes it is “entirely possible” that the December 15 tariffs could still be held off to avoid derailing the process provided that solid progress can be made. The extent of the US tariff rollback, the magnitude and timing of China’s agriculture purchases and enforcement mechanisms are the key issues that remain to be resolved, he said.
Jeff Yastine, a senior equities analyst at investment advisory firm Banyan Hill Publishing, told Asia Times that the forceful new legislation being pushed by the US Congress poses no threat to “making US-China trade relations worse than they already are” and are not likely to derail the trade relationship for a significant length of time.
The bill “may even help US-China trade relations” by putting a bigger spotlight on areas like Hong Kong where China is “more vulnerable to global public opinion,” Yastine believes.
“The protests, and the bill, only serve to underscore the pressure that Chinese authorities are under to come to an agreement of some kind with the Trump administration and put their economy on a better footing.”