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Letter from Washington

Political Insider

President Trump’s schedule (EDT):

11:30 AM:  Attends the White House Opportunity and Revitalization Council meeting;

12:15 PM:  Daily intelligence briefing; and

  4:30 PM:  Meets with Chinese Vice Premier Liu He.

“Trump to Meet China’s Liu in a Sign Trade Talks Are Reaching Final Stages.”  This morning’s Bloomberg article leads with:

U.S. President Donald Trump will meet Chinese Vice Premier Liu He at the White House on Thursday as speculation grows that negotiations over a trade deal between the world’s biggest economies are entering the final stages.

Talks are continuing in Washington where Liu held meetings with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday. The goal over the next few days is to strike an agreement on the core issues so Trump and Chinese leader Xi Jinping can hold a ceremony to sign a deal.

Drafts of an agreement to end a nearly year-long trade war would give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation, according to three people familiar with the talks.

“Both sides do want an agreement but they want to make sure it’s the right deal for their respective domestic audience,” said Tai Hui, Asia-Pacific chief market strategist at JPMorgan Asset Management in Hong Kong.

Stocks in Asia dipped from a six-month high, as investors look for signs of progress from the talks. The offshore yuan held at 6.7169 per dollar

As the talks resumed on Wednesday morning, Trump’s top economic adviser touted progress but cautioned that a final deal to end the trade war remained elusive. Negotiators are “making good headway,” White House economic adviser Larry Kudlow told reporters at an event in Washington. “But we’re not there and we hope this week to get closer,” he said.

U.S. and Chinese officials are still discussing when the two leaders could sit down to sign off on their trade deal. A meeting date between Trump and Xi could be announced as early as Thursday, people familiar with the plans said. After Xi’s team initially floated a formal state visit to Washington as an option, China has pushed back against a meeting on U.S. soil and wants to instead meet in a neutral third country, the people briefed on the plans said.

“Tariffs Take Center Stage in U.S.-China Trade Talks.”  Last night’s Wall Street Journal article led with:

WASHINGTON—The Trump administration’s demand that punitive tariffs remain to ensure Beijing enacts genuine overhauls has emerged as one of the biggest sticking points, as U.S. and Chinese trade negotiators opened new face-to-face talks aimed at a deal.

Delegations met in Washington Wednesday, seeking to craft an agreement President Trump and President Xi Jinping of China could sign. The stakes are high for both sides, as failure to reach an accord threatens to rattle financial markets and further strain relations between the world’s two largest economies.

China trade envoy Liu He’s priority is to persuade his U.S. counterparts to remove tariffs on $250 billion of Chinese goods immediately on signing a deal, Chinese officials said. In exchange, Beijing is ready to eliminate retaliatory tariffs on $110 billion of U.S. goods.

In a sign that Mr. Liu may be making progress, Mr. Trump is looking to announce on Thursday the date of a summit with Mr. Xi, said an administration official. That’s a big signal the two sides are on the cusp of a deal, trade experts say, and a resolution of the tariff issue. But the official cautioned that the situation is fluid, and plans could change.

Beijing has few other trade demands in the negotiations, aside from opening U.S. services and agricultural markets further to Chinese companies. What is more, U.S. business leaders support China’s demand to completely lift tariffs.

“Without tariffs being removed, it’s highly unlikely there will be a deal anytime soon between China and the U.S.,” said Myron Brilliant, executive vice president of the U.S. Chamber of Commerce, who talks regularly to senior trade officials in both countries.

But U.S. trade negotiators look at tariffs as a way to make sure China lives up to its commitments in a trade deal. They want to roll levies back slowly. “We have to have real progress” before lifting tariffs, U.S. Trade Representative Robert Lighthizer told the Senate Finance Committee in March.

“Administration to Stick With Tariffs While It Sells New NAFTA.”  Yesterday’s CQ Roll Call article led with:

President Donald Trump would veto any legislation Congress might send him that would limit or end Section 232 national security tariffs, White House chief economic adviser Lawrence Kudlow said Wednesday.

Some key Republicans have joined Democrats in urging the president to drop his national security tariffs on steel and aluminum imports, with Senate Finance Chairman Charles E. Grassley, R-Iowa, saying last week he expects bipartisan compromise legislation “in the coming weeks” that would limit the tariffs. 

“The president is not in favor of that at the moment,” Kudlow said. “And he believes, as he conducts his trading relationships, he needs maximum [leverage] to bring home some deals,” he told reporters at a Christian Science Monitor-sponsored breakfast meeting.

Trump last year imposed steel and aluminum tariffs including on North American Free Trade Agreement (NAFTA) partners Mexico and Canada.

Lawmakers on both sides of the aisle have called on Trump to lift the tariffs on the two neighbors before the House and Senate vote on his proposed NAFTA replacement, the U.S.-Mexico-Canada Agreement (USMCA).

Grassley has said that any legislation must be able to garner a veto-proof 67 votes to pass the Senate.  

Even so, Kudlow said that the Trump administration is upbeat about congressional approval of Trump’s proposed NAFTA re-write “whenever [Speaker Nancy] Pelosi will give us a vote.” 

House Democrats have repeatedly cited several issues they have with the proposed pact including labor concerns, outsourcing of jobs and not enough provisions to lower prescription drug prices. U.S. Trade Representative Robert Lighthizer has met with House Democrats several times to win their support for the agreement.

On Tuesday, Pelosi said she is “inclined” to try and build upon the existing NAFTA, but she also laid out some concerns her caucus has about workers rights, environmental provisions and pharmaceuticals that she wants addressed before taking up the proposed agreement.

“The overarching concern that we (Democrats) have is even if you have the best language in the world in that, if you ain’t got enforcement, you ain’t got nothing,” Pelosi said.

“Few Winners, Many Losers From Trade Tariffs, IMF Study Finds.”  Yesterday’s Wall Street Journal article led with:

WASHINGTON—Progress in trade talks between the U.S. and China has sidelined the Trump administration’s threat to raise tariffs on Chinese goods to 25%—and that’s a good thing for the U.S. and the world, a new study concludes.

Tariffs of 25% on the roughly $540 billion in Chinese goods imported annually to the U.S. and retaliatory tariffs on the $120 billion of U.S. exports to China would dent U.S. gross domestic product by 0.3% to 0.6%, according to a study published Wednesday [scroll down to Ch. 4] by the International Monetary Fund.

Such damage would come as trade declines or shifts to other countries, and as U.S. businesses and consumers have to shoulder higher costs for imported goods.

China would be hit even harder, with its GDP declining 0.5% to 1.5%, the IMF study found, because China’s exports to the U.S. are a larger share of its economy than vice versa. But Mexico, Canada, Europe and other parts of Asia would actually benefit somewhat, in the short run, as trade is diverted through their economies to avoid the tariffs.

Bipartisan Drug Pricing Bills Passed House Energy & Commerce Late Last Night.  The Committee press release stated:

The Committee favorably reported the following bills:

Political Insider

About Pete Davis

Pete Davis

Pete Davis advises Wall Street money managers on Washington, DC policy developments that affect the financial markets. Visit his website here daviscapitalinvestmentideas.yolasite.com.

Articles by Pete Davis

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