China Expert Predicts Pause in Tariff Escalation in March, but No Rollbacks

Eswar Prasad, a senior trade professor at Cornell University and the former head of the International Monetary Fund's China Division, expects that "some sort of compromise" will be reached with China just before the March 1 deadline for the tariff rate hike, and that after China accedes to certain U.S. demands, "at least they're going to back off additional hostilities." Prasad, speaking at the National Economists Club Jan. 17, said he expects all the tariffs on China to stay in place, as well as the Chinese retaliation -- though he does expect increased purchases of American soybeans to be part of the package.

He said the deal will certainly not be "comprehensive, durable and long-lasting," and he said that in order for the 25 percent and 10 percent U.S. tariffs to be rolled back, there would have to be a real deal. He said that Chinese President Xi Jinping feels that state-owned enterprises are critical, and that there will not be a complete capitulation, or a shift in industrial strategy. Moreover, even where China does intend to make changes, such as in better intellectual property protection, he said, "China wants to do things in its own way and at its own pace."

"I don't see a clear path to a de-escalation," he said, even if Trump is no longer in office in 2021. "The hostility towards what is seen as China's unfair economic activities pervades both sides of the aisle," he said, so he doesn't see how the 25 percent tariffs on the first two tranches of Section 301 tariffs on nearly $50 billion in imports or the 10 percent tariffs on $200 billion in goods will be removed. The Wall Street Journal on Jan. 17 reported that U.S. Trade Representative Robert Lighthizer might be open to lifting some of the tariffs in March if a strong deal is reached; the report said that Treasury Secretary Steven Mnuchin is pushing for some rollbacks at the end of January, as an incentive for the Chinese.