85: Trump-China Negotiating Dramatics and Even More Tariffs

Episode Summary

Executive Summary: This episode analyzes the May 2019 breakdown in U.S.-China trade talks, focusing on President Trump’s sudden tariff escalation, possible reasons the deal collapsed, and the immediate economic consequences. The hosts argue that whether the talks failed because China backtracked or the U.S. used pressure to seek a tougher deal, the result was higher tariffs, greater uncertainty, and a significant step toward trade decoupling.

Main Topics: Tariff escalation and failed trade talks (Priority: 5/5): The episode centers on the U.S. raising tariffs on $200 billion of Chinese imports from 10% to 25% and signaling further tariffs on remaining imports, following the collapse of negotiations in Washington. Why the deal fell apart (Priority: 5/5): The hosts weigh competing explanations: Chinese reneging on commitments, U.S. negotiators using accusations to force a tougher deal, or simple mutual miscalculation amid opaque negotiations. Negotiation sticking points (Priority: 5/5): They identify unresolved issues such as China’s refusal to detail law changes, timing of tariff rollback, procurement commitments, and China’s demand for a more balanced agreement. Economic effects of tariffs (Priority: 4/5): The discussion reviews evidence that U.S. importers have largely borne tariff costs so far, while warning that broader and higher tariffs will increasingly affect consumer goods and prices. Political and policy reactions (Priority: 4/5): Trump’s proposal to buy agricultural products and ship them as aid is criticized as inefficient, distortionary, and inconsistent with WTO rules, though politically aimed at supporting farmers. Historical comparison (Priority: 4/5): The hosts place the new tariff levels in historical context, showing China’s average tariff rate moving toward levels last seen in the 1930s and highlighting the discriminatory nature of the current regime. Long-term strategic implications (Priority: 3/5): The episode closes by framing the dispute as potentially pushing either a rules-based multilateral response, a painful but necessary bargaining process, or deeper U.S.-China decoupling.

Key Arguments: The tariff hike was not just bluff or leverage; the administration followed through, indicating a real breakdown rather than pure negotiating theater. The precise reason for the collapse remains unclear because the process is opaque and both sides tell conflicting stories about what was promised and broken. China may have misread U.S. resolve, believing U.S. economic weakness would make Trump more likely to compromise. U.S. hawks may have used the breakdown to push the talks toward a tougher, more concession-heavy agreement than a quick deal would have produced. Existing evidence suggests U.S. companies/importers are largely paying the tariff costs at the border, at least in the short run. If tariffs broaden to all Chinese imports, consumers will feel much more of the burden because the affected goods will include clothing, electronics, and toys. Buying farm products for foreign aid would function as a costly subsidy, misallocate agricultural production, and fail to solve the underlying trade problem. The new tariff levels push U.S. trade policy toward historically high, discriminatory treatment of China, nearing 1930s-style rates. The conflict may represent an inflection point that makes retreat politically harder and raises the probability of further escalation or partial decoupling.

Data Points: Tariff rate on $200 billion of Chinese imports: 10% to 25% - Raised at midnight Thursday/Friday during the escalation described in the episode Tariffs already in place before escalation: 25% on $50 billion of imports and 10% on $200 billion of imports - Baseline U.S.-China tariffs before the May 2019 increase Current tariff coverage: Around $250 billion of U.S. imports from China - Total imports affected by tariffs at the time of recording Potential next round of tariffs: 25% on roughly $300 billion more of imports - Threatened additional tariffs on remaining Chinese goods Average U.S. tariff on Chinese imports before 2018: About 3% - Historical baseline before trade war escalation Average U.S. tariff on Chinese imports after 2018 tariffs: About 12% - After 2018 measures including washing machines, solar panels, steel, aluminum, and the $250 billion tranche Average U.S. tariff on Chinese imports after May 10, 2019 escalation: About 18% - After the May 2019 tariff increase Projected average U.S. tariff if all threatened tariffs are imposed: About 29% - If the U.S. follows through with tariffs on remaining Chinese imports Average U.S. tariff on China if China were outside the WTO: About 38% - Comparison to column two tariff rates in the U.S. tariff schedule Negotiation document length: 150 pages - Reported working document for the trade deal negotiations Number of days of talks in Washington: 2 days - Negotiations reportedly continued over Thursday and Friday after Liu He arrived Date of U.S. tariff escalation: Minute past midnight Thursday/Friday, May 10, 2019 - When tariffs on the $200 billion tranche rose to 25% Existing tariff burden under discussion: $360 billion of trade - Amount of U.S.-China trade already subject to tariffs in 2018 Time horizon for next tariff process: About a month - Reported deadline and Federal Register process before new tariffs could be imposed

Pivotal Quotes: "I am the tariff man." — Donald Trump: Trump’s tweet signaling tariff escalation and framing of his trade strategy "The trade deal with China continues, but too slowly, as they attempt to renegotiate." — Donald Trump: Tweet accompanying the announcement that tariff rates would rise "It really would take both leaders to break the deadlock and to come to some sort of solution." — Ling Wei: Description of how large and unresolved the remaining differences were

Implications: The episode suggests higher prices, prolonged uncertainty, and a harder bargaining environment for businesses and importers. It also signals a shift toward more entrenched U.S.-China economic confrontation unless leaders re-engage or a future administration resets the talks.