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U.S.-China trade talks end without a deal. Why both sides feel they have the leverage

On Friday, China’s top negotiator left Washington without a trade deal, and President Trump implemented another series of tariffs on Chinese goods. Nick Schifrin talks to the Brookings Institution’s Ryan Hass, former national security staff under President Obama, and American Enterprise Institute’s Derek Scissors about how the policy change will affect Americans and the outlook for more talks.

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  • Judy Woodruff:

    The U.S.-China trade war intensified today, as the Trump administration increased tariffs on imported goods from China, and China pledged to retaliate.

    As Nick Schifrin reports, China's top negotiator left Washington without an agreement.

  • Nick Schifrin:

    On a sunny Friday morning in Washington, the trade war escalated with a handshake. The top Chinese and U.S. negotiators ended their 11th round of talks cordially, but the two countries are in economic conflict.

    Today, the U.S. increased tariffs from 10 percent to 25 percent on $200 billion of Chinese exports, including seafood, luggage, purses, and parts sold to U.S. companies, such as circuit boards, microprocessors, and machinery. And the U.S. is threatening to go even further and impose tariffs on all cell phones, clothing, and laptops made in China, and exported to the U.S.

    In response, the Chinese Foreign Ministry vowed — quote — "necessary countermeasures." And spokesman Geng Shuang asked the U.S. to give a little.

  • Geng Shuang (through translator):

    The two sides need to meet each other halfway.

  • Nick Schifrin:

    But the U.S. accuses China of not going halfway. U.S. officials say, over all these rounds of negotiations, they hammered out a 150-page deal with changes to Chinese laws that would open the Chinese market to U.S. companies and protect U.S. technology and intellectual property.

    But, last weekend, the U.S. believes Xi Jinping rejected those changes to law.

  • President Donald Trump:

    We were getting very close to a deal. Then they started to renegotiate the deal. We can't have that. We can't have that. So our country can take in $120 billion a year in tariffs, paid for mostly by China, by the way, not by us.

    A lot of people try and steer it in a different direction. It's really paid — ultimately, it's paid for by — largely by china.

  • Steve Lamar:

    Tariffs are taxes the Americans pay. They're taxes that American companies pay. Ultimately, they're taxes that consumers pay. And they're taxes that result in job losses in the United States.

  • Nick Schifrin:

    Steve Lamar is the executive vice president of the American Apparel & Footwear Association. He opposes this round of tariffs, and says, if further tariffs are imposed on everything made and shipped out of China, the victims will be American consumers.

  • Steve Lamar:

    If you realize that 82 percent of our backpacks and purses and travel goods come from China, 70 percent of our footwear comes from China, 42 percent of our apparel comes from China, when you tax these items, that is going to result in about a $500 increase for an average family of four.

  • Nick Schifrin:

    And some of the families worst hit by the trade war are farmers.

  • Daniel Richard:

    The Richard family has been farming for around 100 years, my grandfather, great-grandfather, and myself, and hopefully the next generation.

  • Nick Schifrin:

    Daniel Richard farms soybeans, rice and crawfish in Louisiana. He and his fellow farmers were hit by Chinese retaliatory tariffs, making it impossible to sell their crop. They had to leave them in the field to die.

    And, today, soybean prices are so low, he can't cover his costs. He spoke to us from his phone on his farm.

  • Daniel Richard:

    At the selling price it is now, at $8 beans, we can't pay the expenses that we are putting out in the field. So we're unprofitable as soon as we put the planter in the field.

  • Nick Schifrin:

    He doesn't blame President Trump. He blames the Chinese, and urges both sides to make a deal to save American family farms. He fears his son won't be able to follow in his footsteps.

  • Daniel Richard:

    Well, he just graduated from college. I can see in his heart and his blood he's got it in him. And he's definitely got the work ethic. But he sees what's going on right now. And there's other opportunities out there. It's not just the farms that are hurting. It's these little communities that are hurting.

  • Nick Schifrin:

    Administration officials say they understand that short-term pain, and ask for patience as they try to change long-term Chinese economic behavior. But, for now, as it was in Washington this afternoon, there could be stormy days ahead.

    This afternoon, though, President Trump tweeted and called today's discussions candid and constructive and said the conversations will continue.

    To talk this through, we get two differing views.

    Ryan Hass was the director for China on the National Security Council staff during the Obama administration. He is now a Brookings Institution fellow. And Derek Scissors has written extensively about China's economy, and is a resident scholar at the American Enterprise Institute.

    Thank you very much to you both for joining the "NewsHour."

    Ryan Hass, let me start with you.

    Many assumed last week that there would be a deal between the two sides. Was this a breakdown we saw today?

  • Ryan Hass:

    Well, it appears to have been a breakdown from expectations.

    As you said a week ago, it looked promising that there would be a deal. And then, over the weekend, President Trump and members of his team indicated that the Chinese had backed away from commitments that they thought they had already received from them.

    And, as a consequence, we now have another step on the escalatory ladder of tariffs with China. So, my concern is that we have taken another step down a dark tunnel with no end in sight.

  • Nick Schifrin:

    Derek Scissors, is this a step down a dark tunnel with no end in sight?

  • Derek Scissors:

    If you wanted the deal that was on the table, it is.

    I was not at all convinced the deal on the table was going to work. In particular, I thought China's incentives to keep its promises on intellectual property were unlikely — were low. And then the Chinese backed that up by saying, we don't want to make the legal changes that even might lead us to keeping our word on intellectual property.

    So it's certainly a step away from the deal. I don't think that's necessarily a step down a dark tunnel.

  • Nick Schifrin:

    Meaning you don't think it's necessarily a bad thing to step away from that deal?

  • Derek Scissors:

    That's right.

    It's going to be very difficult to get China to change its policies on intellectual property, as well as others, such as subsidies to state-owned enterprises. It shouldn't be an easy deal.

    It certainly shouldn't be a deal that the president makes in a phone call with Xi Jinping. As some have implied, we're going to have difficulties in the negotiation. This is all part of the — what the process should look like.

  • Nick Schifrin:

    So, Ryan Hass, intellectual property, as Derek Scissors just mentioned, subsidies for state-owned enterprises, forced technology transfer, these are the things the U.S. is trying to get China to change. Can tariffs achieve that?

  • Ryan Hass:

    Well, thus far, I think that we have overestimated our ability to muscle the Chinese into accepting our will, and underestimated China's ability to punch us in places that hurt.

    And, as a result, American people are feeling the pain. And so if the question is, are we going to get absolute surrender from the Chinese, I'm very pessimistic that that's the case. If we can make progress where progress is possible, I think we should do so.

  • Nick Schifrin:

    Derek Scissors, is that enough progress, as Ryan Hass put it, rather than get the Chinese to surrender?

  • Derek Scissors:

    Well, first of all, I disagree with both premises in Ryan's point.

    When he says the American people are feeling the pain, farmers are feeling the pain. Aggregate U.S. economic growth is strong. Consumer prices are low. I don't see much pain caused by China tariffs. They may be caused by bad fiscal policy, but not by our China policy.

    And then the second part, of course, it's a false dichotomy to say the idea is, we have to accept the Chinese offer or they have to surrender. As I said, this is going to be a long, difficult process. We're not going to get everything we want.

    But the turn — to make a deal just so that you can remove uncertainty for the stock market or the like would be a mistake that would hurt the U.S. for years to come.

  • Nick Schifrin:

    Ryan Hass, short-term pain OK for long-term gain? What do you think?

  • Ryan Hass:

    Well, if there is long-term gain that accompanies the short-term pain, then sure.

    But right now, all we're seeing is the pain, without any accompanying gain. I think the American people were supportive of President Trump shaking things up and trying a new approach to China. I think that there was merit to it.

    But they wanted to achieve a purpose, not attack China on principle. And, right now, we are in this exculpatory spiral, where neither side appears willing to take a step back from the brink. And I don't think that's a good place for the United States to be.

  • Nick Schifrin:

    Derek Scissors, let me ask about leverage right now.

    Who has more leverage, the United States or China? And do both leaders believe right now that they can actually push the other around?

  • Derek Scissors:

    I hope not, because that's — that's — pushing the other around, as Ryan just mentioned, for no goal is not a good strategy to get what you want.

    I do think the U.S. has more leverage. The president is right about that. But the leverage has to be applied over an extended period of time. If the president becomes impatient, as it seems he was late last year and early this year, then we can't use that leverage.

    The U.S. leverage advantage is a long-term leverage advantage. It's not about signing on tariffs and then saying a week later, are you ready to make a deal? We're going to have to have some pain to get China to change its policies. If we're not willing to put up with that pain, then we should just abandon this process and sign a short-term deal that does very little.

  • Nick Schifrin:

    Ryan — Ryan Hass, yes. Sorry.

  • Ryan Hass:

    I think Derek makes a great point.

    In trade negotiations, the patient party has an advantage. The disciplined party has an advantage. And right now, the Chinese are trying to stake out that territory. The Chinese have a view that they have leverage, because the closer that we get to our 2020 presidential election, the more desirous President Trump will be of a deal.

    The United States believes that it has leverage, because our economy is strong and China, we believe — the Trump integration believes that China's economy is brittle and that President Xi needs a deal. And so we find ourselves stuck in this dilemma where both sides think they have leverage over the other, and neither appears willing to make the compromises necessary to reach a deal.

  • Nick Schifrin:

    Derek Scissors, should the U.S. be making compromises right now?

  • Derek Scissors:

    No, it should not.

    Again, if you start with the premise that we have serious problems in our relationship with China, you don't try to get to a quick outcome.

    You have to deal with uncertainty and risk and stock market losses and all the things that come in with long negotiations. We should not be in a hurry to make a deal.

    Now, Ryan may be right that the president sees the need to make a deal before the 2020 election. I hope that's not true. I hope he continues to receive support, as he has, from both parties, because both parties have realized we need a change in the China relationship, and it's not going to be easy.

  • Nick Schifrin:

    Ryan Hass, you mentioned whether — the perspective from the Chinese that the U.S. actually has less leverage.

    There's a notion of the Chinese officials I talk to who say, basically, you guys can't take the heat. You guys can't take the political heat — or the president can't take the political heat and actually make sacrifices. Is that right?

  • Ryan Hass:

    Well, Nick, I think you're right.

    I think there's a baked-in assumption that the Chinese have that the American political system is ill-equipped for pain tolerance. And the Chinese see that as their advantage.

    They see their system, their top-down Leninist system, where they have a leader that doesn't face reelection, a leader that does have control over his media and can tamp down discontent or protest, and a leader that can allocate resources where they're needed, with control of fiscal monetary levers, as distinct advantages that they have on a systemic level relative to the United States.

    I agree with Derek. I would like for us to prove them wrong, as an American. But we will see.

  • Nick Schifrin:

    Derek Scissors, last word to you.

    Do you have faith that the administration is going to pursue this path in the correct way, in your opinion?

  • Derek Scissors:

    No, I'm afraid not.

    I think the president's constant comments about his friendship with Xi Jinping make it difficult to have faith. I think he deserves great credit for identifying this problem and being more aggressive than President Obama and President Bush. We need that.

    But I think the president is still looking for maybe a personal connection to Xi to seal a deal that will benefit the United States for a year or two, but not solve the problems we have with China.

  • Nick Schifrin:

    Derek Scissors with the American Enterprise Institute, Ryan Hass, former Obama National Security Council China director, now at Brookings, thanks to you both.

  • Ryan Hass:

    Thank you.

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