U.S.-China Trade Plan Marks Key First Step -- Update

An initial trade framework between the U.S. and China shows that President Donald Trump is willing to put aside his tough rhetoric and accept a limited deal with Beijing in a bid for more substantial agreements down the road.

The pact, announced Thursday, is aimed at allowing U.S. beef exports to China, opening up credit-card payment systems there and potentially selling American liquefied natural gas to the energy-hungry country. It avoids the more divisive trade issues in the steel and aluminum industries.

Still, the agreement is significant in that it shows how the Trump administration is ready to emphasize cooperation and open markets, as opposed to imposing the across-the board tariffs Mr. Trump talked about in his campaign.

While parts of the deal are the result of long-running talks originating in the Obama administration, officials characterized it as a down payment on potentially greater economic accomplishments with Beijing in the coming year.

"Both sides also identified other issues that will require significant effort to resolve and achieve progress on, still within the 100-day period," Commerce Secretary Wilbur Ross said, referring to a plan Mr. Trump agreed to in April with Chinese President Xi Jinping for achieving, within 100 days, a set of economic openings between the two countries.

Mr. Trump's softer tone toward China in recent weeks is seen partly as an effort to gain cooperation over North Korea, but also part of an effort to give economic negotiations a chance to bear fruit, current and former officials say.

The kinds of tariffs Mr. Trump pledged in 2016 on the more than $400 billion in goods China sends the U.S. annually would likely have buoyed some American manufacturers. But the tariffs -- essentially a tax on goods crossing the border -- would have raised the prices consumers pay for everything from cellphones to clothing, and diminished commerce between the two countries, with the possible result of a trade war.

Since he became president, Mr. Trump has avoided threats of broad tariffs, which his aides have described as a strategy to win concessions from China and other countries.

The U.S.-China deal this week addresses a series of trade irritants, ranging from clearing a backlog in China's slow approval of American genetically modified seeds to giving Beijing a deadline for resuming beef imports from the U.S. Still, the preliminary 10-point bilateral trade plan, released by both governments Thursday, didn't address larger issues for the industries involved; for example, the plan doesn't include concrete changes to boost natural-gas trade.

The agreement the Trump administration worked out with Beijing, part of what the administration hopes will be a bigger pattern of opening Chinese markets, appears to be just an understanding between the two governments.

One country could fail to honor the plan, or a political shift could undermine it -- with no spelled-out repercussions. "None of these are enforceable in the same sense as a WTO type of case," said Chad Bown, a trade expert at the Peterson Institute for International Economics, which backs trade liberalization.

Still, Mr. Trump can now market the progress with China as an economic win and a welcome distraction from political headwinds back home. Hours after it was announced, Mr. Trump touted the agreement Friday on Twitter as "REAL news," distinct from the domestic political firestorm that captured public attention in recent days.

Mr. Ross described the agreement as a "herculean" accomplishment. "This is more than has been done in the whole history of U.S.-China relations on trade," he told reporters.

The shift toward potential cooperation with Beijing -- and away from confrontation -- isn't lost on some of Mr. Trump's hawkish trade advisers during the campaign.

"The best time to judge this administration's China policy is going to be a year or two from now to see what has actually happened," said Peter Navarro, now head of the new White House Office of Trade and Manufacturing Policy, in a recent interview. "In the meantime, calling a prideful China out publicly during these early negotiations would be counterproductive. No one understands that better than the president."

Mr. Ross portrayed the talks with China as an effort to win a series of quick concessions after previous administrations achieved little tangible progress in long-running talks on a more comprehensive bilateral investment treaty.

At the same time, the administration has launched wide-ranging investigations into steel and aluminum that could be used -- with a final decision from Mr. Trump -- to pressure Beijing over its exports of low-price steel and aluminum, which American producers blame for hollowing out U.S. metal production.

The focus on opening up individual markets drew cautious support from business groups and U.S. lawmakers, who expressed hope that the Trump administration will work to achieve broader economic gains. "The real work lies ahead," the U.S. Chamber of Commerce said in a statement.

"Most of this is about additional talks," said Sen. Ron Wyden, the top Democrat in the Senate committee that oversees trade. "At this point we need a lot more detail to really answer," he said in an interview, emphasizing that the newly confirmed U.S. trade representative, Robert Lighthizer, should be a big part of future negotiations.

Some labor groups and Democrats have complained that Mr. Trump is weakening his stance against Beijing by apparently backing out of a threat to name China a currency manipulator and not prioritizing talks on reducing the country's steel overcapacity, at least not publicly.

American steel producers have successfully petitioned for import tariffs on certain Chinese steel and aluminum products, and many hope the broad investigations based on national security that the administration launched in recent weeks will result in more tariffs.

But for now Messrs. Trump, Ross and other officials appear to be focused on working with Chinese counterparts to open markets long blocked by sanitary concerns, bureaucratic red tape or outright protectionism.

"This move from China is a step in the right direction, but it's just symbolic," said Ker Gibbs, chairman of the American Chamber of Commerce in Shanghai. He said foreign players would continue having a hard time gaining traction in China.

The deal is symbolic for China as well, allowing it to depict Mr. Xi's team as skillful at negotiating with a new American administration that has pledged to take China to task over its trade practices.

The announcement comes as Mr. Xi gets ready to showcase his flagship trade project -- the One Belt, One Road plan to build roads, pipelines and ports across a vast swath of the globe -- to leaders of around 30 countries in Beijing. The project has come to symbolize China's message that it is committed to open trade.

One big political risk Mr. Trump faces with the latest negotiations is that they're unlikely to have a big impact on the $347 billion trade deficit between the two countries.

U.S. beef exports to China, if resumed in July as planned, may only account for a few billion dollars in coming years, and the U.S. at the same time has agreed to accept cooked chicken from China, which could weigh a bit on the U.S. deficit. Liquefied gas exports depend on expensive infrastructure and complicated government approvals.

"This is small," said Mr. Bown of the Peterson Institute. "If Trump is going to continue to use the bilateral trade deficit with his kind of test, this is not going to dent it in any significant way."

The overall U.S. trade deficit is based on American patterns of savings and investment. Restricting imports with a given nation, as Mr. Trump repeatedly threatened during the campaign, could merely shift the deficit with one country to another country, and trade agreements tend to boost both imports and exports with a given bloc, economists say.

Sending American natural gas to China, if it takes off, could raise the price of energy for U.S. manufacturers and hurt their competitiveness, Mr. Bown said.

Mr. Wyden also worries that China's overcapacity in steel and aluminum could gain further support from access to American gas. He says he appreciates any opening for beef exports to China from his state of Oregon.

--Chuin-Wei Yap contributed to this article.

Write to William Mauldin at william.mauldin@wsj.com

(END) Dow Jones Newswires

May 12, 2017 18:53 ET (22:53 GMT)