With Trade War On Hold, Observers Wonder What's Next for US-China Trade

The Trump administration's decision to stop the implementation of Section 301 tariffs while the U.S. and China formalize a deal has left many wondering which country is coming out ahead. China economics expert Derek Scissors, an American Enterprise Institute scholar who briefly advised the Trump administration on the Section 301 investigation, thinks it's too early to say. "I didn’t think he would agree to a deal where we have nothing on the table. I’m shocked at that. I assume more is coming," he said. "Right now this is an IOU for a deal."

On May 21, one day after Treasury Secretary Stephen Mnuchin said a trade war with China is "on hold," Senate Minority Leader Chuck Schumer tweeted that he wanted Trump to stay tough on China trade. "POTUS/his team have to be strong & not sell out for a temporary purchase of goods without fixing the real issue: stealing our IP, which costs us millions of jobs long-term," he said.

Eric Miller, president of Rideau Potomac Strategy Group, said the Chinese have learned they can play chicken and win. But he said there are still ways to protect U.S. industry from Chinese bad behavior. He suggested that CBP needs a 5 percent increase in its annual budget, and additional mandates through legislation, to work overseas on detecting circumvention of antidumping duties. "I spend a lot of time working on customs issues," Miller said. "We know very little about the origins of products coming into the United States. The importer of record is making declarations they neither created or verified."

He said with products having layer upon layer of content, from China, Malaysia, etc., companies don't really know where products are from, but they are trying to get better at that. "Partly it’s an effort at compliance; ultimately they are doing that as a way to drive efficiencies in their supply chain. If you don’t know much about the person three levels back in your supply chain, odds are you’re overpaying them."

Philip Levy, senior fellow on the global economy at the Chicago Council on Global Affairs, said he thinks Trump will declare victory for very little. "They had gotten themselves into a bit of a jam," because businesses that import Chinese intermediary goods were so opposed to the tariff list the administration wished to use to convince the Chinese to stop forced technology transfers, subsidies and other practices.

Scissors said he is appalled that the Trump administration would back off from the export ban for ZTE, the Chinese telecom company that violated Iran and North Korea sanctions. "I was shocked about that [Trump] tweet -- too many jobs in China lost. 'Too many jobs in China lost.' What did you run on?"

While there's been no official announcement on what will happen to ZTE, both Levy and Scissors believe the export ban will end and will be replaced by a fine. Scissors said saving ZTE was so high a priority for China that if the export ban ended, but tariffs on $50 billion in goods went forward, China would see it as a victory. But Scissors said he doesn't know if a rollback of ZTE sanctions will be the final word because "you can get a ZTE sanctions bill through Congress easy."