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Prospects for Resolution of Trade Dispute with Mainland China Remain in Doubt as Industry Associations Warn About Negative Impact of Tariffs

As previously reported, on 12 September the multi-industry coalition Americans for Free Trade and the farmers group Farmers for Free Trade launched a multi-million dollar “Tariffs Hurt the Heartland” campaign focused on telling the stories of the American businesses, farmers, workers and families harmed by tariffs through town-hall style events, grassroots outreach to Congress and the Trump administration, social media, rapid response and digital advertising. While the campaign has a national outlook, Midwestern states have received particular attention ahead of the 6 November congressional mid-term elections.

A number of association executives spoke against the administration’s tariff policies at a “Tariffs Hurt the Heartland” event on 25 October in Waukesha, Wisconsin, which was also attended by the state’s Republican Senator Ron Johnson. John Kirchner, executive director of the U.S. Chamber of Commerce in the Midwest Region, decried the impact of the U.S. tariffs on needed inputs and equipment as well as the effect of other countries’ retaliatory tariffs and changed purchasing decisions on U.S. exports. He reminded his audience that “there's an election coming up in 12 days” and stressed the importance of going to the ballot box with tariffs in mind to “make sure we're holding current members of Congress accountable for their position on this issue.”

Association of Equipment Manufacturers President Dennis Slater, meanwhile, discussed the real-world impact that these tariffs have had on Wisconsin businesses and its 1.3 million workers. For Slater, the negative impact of these tariffs on the economy and workers is clear, as he asserted that “equipment manufacturers want to work with the administration to strengthen America’s trade position, but we need policies that open up foreign markets, not ones that tax Americans.” After describing his organisation as a long-time supporter of open markets and fair trade, Wisconsin Farm Bureau President Jim Holte complained that “the ongoing retaliation tariffs are causing even more heartburn for our already burdened farmers.”

In related news, the Retail Industry Leaders Association, which represents the largest U.S. mass-market retailers, sent a letter to President Trump on 25 October applauding his announcement of plans to meet with mainland Chinese President Xi Jinping on the side-lines of the 30 November-1 December G20 leaders’ summit in Buenos Aires, Argentina. The letter voices RILA’s willingness to work with the administration to seek a resolution to the trade dispute that is good for American consumers. However, retailers are concerned about the administration's plans to increase from 10 percent to 25 percent effective 1 January 2019 the Section 301 tariffs on the most recent tranche of mainland Chinese products worth some US$200 billion. To make matters worse, the U.S. government has not established a product exclusion petition process for this tranche of products.

Prospects for significant progress in Buenos Aires or soon thereafter remain very much in doubt, however. Senior U.S. officials speaking on condition of anonymity point out the United States is not prepared to resume serious trade negotiations with mainland China until Beijing comes up with a detailed and concrete proposal to address Washington’s complaints about forced technology transfers and other issues. During the bi-lateral talks held in May, U.S. negotiators handed their mainland Chinese counterparts an eight-point list of demands, ranging from halving the US$376 billion trade deficit to curtailing much of mainland China’s subsidies for high-technology industries. Mainland Chinese officials divided the U.S. demands into 142 separate items, which they then placed into three categories, according to individuals briefed on the discussions. Of the demands, 30 to 40 percent could be done immediately, another 30 to 40 percent could be negotiated over time, and 20 percent were off limits because they involve national security or other sensitive issues, they said.

Informally named the “80/20 plan” or the “60/20/20 plan”, the idea was presented to the United States in the mid-August negotiations. However, mainland Chinese negotiators did not reveal which items were in each of the three categories but simply noted that 122 of the 142 items were considered negotiable to some extent. Negotiations between the United States and mainland China have been on hold since a negotiating round in Washington was cancelled in mid-September after the United States announced the most recent round of additional  tariffs.

U.S.-China Business Council President Craig Allen indicated in a recent interview that he had privately urged senior mainland Chinese officials to produce a written proposal aimed at assuaging U.S. concerns. However, his contacts said mainland Chinese authorities are not ready to do so at this point and, even if they were, they would first want assurances that the United States would reduce tariffs on mainland Chinese products. Mainland China’s ambassador to the United States, Cui Tiankai, has also said Beijing wants more discussions before it would put forth a more specific offer. In a recent interview, he indicated that “people have to sit down together” and then “each side should make its own proposal.” He noted that Beijing is wary of negotiating because Trump has rejected several offers that other senior U.S. negotiators indicated would be accepted. In addition, various U.S. government officials have attempted to negotiate trade issues with mainland China at various times, including the U.S. trade representative, the secretaries of commerce and the treasury, and assistants to each of those U.S. cabinet officers. “You cannot have some tentative agreement one day and reject it next day,” Cui said.

The impasse comes as tensions between the world’s two largest economies are spreading from trade to national security issues. U.S. Vice President Mike Pence recently criticised mainland China’s acquisition of sensitive technology and accused Beijing of meddling in U.S. politics, further muddying the outlook for a mutually-acceptable negotiated outcome.

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