Former White House Official Says Big Deal With China Unlikely in Near Term

Business and labor leaders and government insider panelists agreed that the U.S.-China trade war will be difficult to unravel, but disagreed on how quickly Democrats could -- or should -- resolve outstanding issues on the NAFTA rewrite. The trade panel Oct. 10, hosted by Fiscal Note, included Clete Willems, former White House deputy assistant to the president for international economics, who said that although it pained him to say it, "The political conditions in both countries are just not conducive to the big deal."

Willems said, "I did feel in April we were relatively close to a comprehensive deal. It wouldn't have solved every issue I talked about," on subsidies, forced technology transfer, cyber theft, or government-owned companies purchasing companies to obtain technology. But Willems, an Akin Gump partner who was in earlier rounds of negotiations, thinks the two teams will not return to that framework.

Myron Brilliant, the head of international affairs at the U.S. Chamber of Commerce, spoke earlier that morning (see 1910100056) about returning to that framework after a round of confidence-building. At the panel, he said a broad economic decoupling is impossible -- the two countries' economies are too integrated. Even so, he said, "Stability in this relationship will not be easy."

Willems and Brilliant agreed in many regards on where the China trade war is going. "There are some frustrations in the Chinese leadership about the escalation in tariffs and other matters," Brilliant said, and they are uncertain about how to find "an exit strategy." But, he said, they know "there isn't a waiting game to be had."

Willems said confronting China over its subsidies and technology theft is a bipartisan policy "and is here to stay. This isn't about Donald Trump." Brilliant and Willems both talked about a small confidence-building package, and Brilliant expressed hope that some tariffs could be reversed if the package is big enough -- though he cautioned that that depends on Trump's appetite for any rollback.

In 2020, Willems said, if Trump has gotten some concessions on structural issues and a return to normal agricultural purchases, he will be able to say he has a win nobody else has gotten. If he combines that with tariffs stabilized at the $250 billion level, he will be able to say he is holding China's feet to the fire for more concessions. This would let him "have his cake and eat it too," Willems said.

While Brilliant would welcome a reversal of the 15 percent tariffs on the $112 billion in imports added to the trade war Sept. 1, he said the Chamber does not want to accept 25 percent tariffs on $250 billion in goods for the long haul.

Fellow panelist Tomas Baert, responsible for trade in the European Union delegation to Washington, said, "In general we agree with the diagnosis on China, not so much with the remedy. It's hard for us to see where President Trump is trying to take us. We struggle, because we some in the administration that are very transactional about China, and some are very transformational on China."

Europe sees "shades of gray" in how to manage the risk of allowing Huawei into 5G infrastructure, he said.

Willems said Europe is not ambitious enough about changing its approach on Chinese economic abuses, which is "a reason we haven't been as multilateral as we'd like."

Brilliant agreed, suggesting that Germany prioritizes preserving its commercial relationship with China, so they're only willing to agree privately with U.S. complaints on Chinese industrial policy.

"We speak with a unified voice on trade policy," Baert said in disagreeing.

The U.S.-Mexico-Canada Agreement was also discussed on the panel, with Brilliant saying it's nearly ready for congressional consideration, and a top United Auto Workers union official said that while the union doesn't dispute there are improvements in USMCA over NAFTA, autoworkers' wages have fallen more than 20 percent over the last 15 years when inflation is taken into account, and only a rewrite that reverses that trend is worth supporting. He's not sure the requirement that 40 percent of the labor in a North American car come from $16 an hour labor is going to do it.

"I just reject the premise nothing more could be done to make it better than the deal on the table," said Josh Nassar, legislative director of the UAW.

"I think we may just be days away from a breakthrough," Brilliant said of the negotiations between the House Democrat working group and the U.S. trade representative. He said a vote might be held in the House before Thanksgiving.

When asked how the UAW would react if that came to pass, Nassar said he couldn't say without knowing what changes the working group was able to obtain to enforcement and the labor chapter. "The details matter a lot," he said.

Willems said, "I get that this is probably your one chance" to get changes to NAFTA, but said that he hopes that the unions don't decide to move the goalposts. He said unions had a lot of input into the rules of origin that USTR negotiated. He said that the changes to the auto rules of origin will lead to tens of thousands of new autoworker jobs in the U.S., and said that European automakers in particular said they are going to build more plants because of the changes.

Baert did not confirm that, and was critical of the changes, which he said would be difficult for European automakers to implement, especially the labor content requirement. "I'm not sure this will lead to more investment in the United States," he said. He said of the USMCA, "I'm not sure I see a lot of trade liberalization in it." He said that BMW and other European automakers "believe in supply chains," and that Mexican-U.S. integrated manufacturing is an export platform. He said BMW sent 80,000 vehicles to China from its Spartanburg, South Carolina, plant, though he did not specify if those figures predate the China trade war.