President Trump said Monday that China “very badly” wants to reach a trade deal with the U.S.
He made the comments at the G-7 Summit in Biarritz, France, noting that Chinese officials had called U.S. trade officials over the weekend to say they were ready to return to negotiations. “They understand this is the right thing to do,” he added. “I think we’re going to have a deal.”
On Friday, President Trump had used a different tone, calling Chinese President Xi Jinping an “enemy” and raising two different tariffs on Chinese goods by five percentage points in reaction to new duties imposed by the Chinese on American goods.
Markets rose on President Trump’s comments on Monday, but some experts believe the trade war could still become more nasty and hurt the economy. At one point on Friday, President Trump had “ordered” U.S. manufacturers to leave China for other locations, claiming he could use the International Emergency Powers Act of 1977 to force companies to do so. He then backed off, and said he has no plans to do so for now.
Legal experts agree President Trump has no power to order companies out of China, but the 1977 act would potentially allow him to block imports and freeze Chinese assets. If he did take those steps, Congress would be required to vote on whether to override his actions and there would likely be court challenges.
If President Trump does follow through on his order for U.S. companies to leave China, it would potentially have a major impact on U.S. chip companies, many that rely on components from Chinese electronics firms and some that manufacture their goods in Chinese locations.
Nelson Dong, a senior partner at the Dorsey and Whitney law firm and an expert on US-China relations, said the sequence of tariffs and counter-tariffs between the two countries in recent months will make it difficult to reach a trade deal.
“Tariffs are and always have been taxes paid by an importer to gain customs clearance and… are then passed down the supply chain to the ultimate user or customer at the end of the chain,” Dong said in an email statement. “Eventually…consumers and end users will have to pay higher prices and thus have less effective purchasing power…Many parties along the supply chain will either experience lower profits or more lost sales.” As a result, producers and intermediaries “can only combine to erode investor and consumer confidence, stall many needed investments and increase the risks of negative local, regional or even global consequences,” Dong added. Dong is a member of the board of the National Committee on U.S.-China Relations.
Both China and the U.S. have large economies that are interdependent, so each has the ability to inflict economic damage on the other, Dong said. “The question remains whether the two countries also have the capacity and will to escape some kind of “economic death spiral” where they are so locked into positions from which cannot easily back away to allow a political resolution,” Dong said.
If trade talks happen in September that would be a “hopeful sign,” he said. However, if the talks are derailed, “both the U.S. and international economic pictures could become quite murky and ominous,” Dong said.