China Experts Split on Whether 15% Tariff Will Come to Pass Sept. 1

"And it's Friday afternoon and you're trying to get out, 'This is what U.S. policy is right now,' and you have no idea."

President Donald Trump suggested that the 15 percent tariff might not come after all when asked by reporters in France during the G-7 meetings. “Anything’s possible," he said. "We’re having very meaningful talks. Much more meaningful than at any time, I would think. China is a great country, I would consider President Xi to be a great leader.”

He also responded to a question about whether he was having second thoughts on escalating the trade war by saying: "Yeah, sure. Why not?" When other reporters repeated the question, he said he has second thoughts about everything.

He did back away from his tweet that said he was ordering U.S. companies to find alternatives to producing in China. "I have no plan right now" to use national emergency powers to restrict U.S. companies' operations in China, he said in France. "Actually, we're getting along very well with China right now. We're talking. I think they want to make a deal much more than I do. "

American Apparel and Footwear Association CEO Rick Helfelbein, reacting to the tweet before Trump backed away from it, issued a statement that said: "Clearly the Trump administration’s use of tit-for-tat tariff hikes are not part of any coherent strategy for China. For two and a half years we have been promised a new and innovative approach, yet what we’ve been given is a 1930s trade strategy that will be a disaster for American consumers, American businesses, and the American economy, Meanwhile, the President has said he wants American businesses to stop working in China, yet he doesn’t seem to understand that moving a supply chain is incredibly complicated and expensive. It takes years to build relationships that meet compliance standards and deliver quality products, yet we have been given weeks and in this case days."

Derek Scissors, a China hawk who has sometimes advised the administration, said that the next call between Chinese officials and U.S. trade negotiators will happen Aug. 28. Do Trump's comments in France signal he could back away from the latest escalation? Scissors said the comments are like the president's tweets. "They might mean something, and they might mean absolutely nothing."

He said that staying at 10 percent on Sept. 1 is easier than going to 15, and he thinks that's the most likely outcome.

Edward Alden, who teaches about trade at Western Washington University, said: "I don't think the tariffs necessarily go up to 15 percent, he could back off -- it's also possible it goes up higher."

Levy thinks Trump cannot walk back the 5 percentage point increases, because it would be too obvious he was backing down. "The problem is he's really painted himself into a corner now. The Chinese were never likely to give him anything satisfactory to the people he had made promises to," he said.

Alden and Scissors both described a completely emotion-driven decision-making process at the White House. Alden said all he knows is that U.S. Trade Representative Robert Lighthizer is no longer driving the bus. "The big picture is that Donald Trump is now running the China trade policy, it's not being run by Bob Lighthizer anymore. And because Donald Trump is running it, it's very difficult to predict the next move. We're no longer in the position where what we're seeing is sort of reasonable escalation of tariffs in negotiating leverage."

Scissors said he doesn't have high hopes for the next round of in-person talks in September. "Maybe the president being scary with his mood swings will get the Chinese more willing to be constructive," he said.

Scissors said Trump escalated with List 4 because China didn't make agriculture purchases after the G-20 meeting. By declining to make $3 billion in purchases, the country's exporters have $70 billion in tariffs applied to their U.S. sales, he said.

"The Chinese have been repeatedly stupid," he said.

Levy isn't convinced China's leader promised to buy agricultural products when he met with Trump in June. "You have this repeated pattern about the president makes these public announcements about what was agreed and nobody else seems to have heard it that way," he said.

Scissors said if China would buy some soybeans, corn and liquid natural gas, it would probably keep Trump off the warpath and stop the cycle of escalation. But, he said, the tariffs now in place won't go away before the election. In fact, he predicts another escalation in February.

Trump told reporters in France: "I think it was necessary to go through this, you would say, 'a rough patch,' but I’d say maybe much more than a rough patch, but that’s okay because we’ve [been] paid billions and billions of dollars. And you know that prices haven’t gone up and there’s been no inflation, and we’ve put a lot of money in the Treasury."

This view that tariffs enrich the U.S. is a core belief of Trump's, Scissors said. "The mistake the Chinese have made from the beginning is not understanding the president is fundamentally a protectionist," he said. Scissors said that when he was in China in the spring of 2017, Chinese officials were saying to him: "Trump is a business man, we can just make a deal with him."

Scissors said he replied: "Are you out of your freaking mind? Have you looked at his business practices? If you make a deal, he thinks he can get more from you."

Scissors scoffed at the administration's narrative that the deal was 90 percent done before the Chinese backed away from commitments in May. He said it was "90 percent done in your head, not in reality. I told Lighthizer it was a giant fraud, That's why he stopped talking to me."

"Lighthizer's problem is he's legacy-chasing," Scissors said. "He wants a huge sweeping deal. That's never going to happen. I told him that in March. That's the last time I talked to him."

Scissors said the Chinese would not have changed their behavior, and would not have stopped intellectual property theft. He said the U.S. doesn't prosecute or sanction Chinese intellectual property theft in any significant way, so how could we expect China to do so?

Scissors said China cannot punish U.S. exporters as much as the U.S. can punish China's exporters, but they can make trouble with North Korea, since Trump has shown how much he wants to be a peacemaker in North Korea.

Scissors said if he were an importer who has products that are now taxed at an additional 10 percent, or that are about to be taxed at 15 percent, he'd stock up. If he sold products already taxed at 25 percent, he'd reduce inventory.

"Just because you have tariffs that kill your margins doesn't mean Vietnam and Bangladesh have room for all your production, I understand that," he said, referring to apparel makers. But he said, he doesn't mind if the U.S. has some clothing inflation -- clothing has been cheap for a long time.

"Our tech imports are much bigger than our apparel imports, They matter more on the strategic side." The Retail Industry Leaders Association is concerned that apparel inflation isn't all that will come from the escalation, and that consumer confidence will fall sharply.

"The President’s continued escalation of tariffs has already rattled the U.S. market. If uncertainty spreads from Wall Street to Main Street, the record expansion we’re enjoying will undoubtedly come to an end and it will be the American consumer, not China, who will suffer, " CEO Brian Dodge said in a statement. "Mr. President, we implore you to end this trade war before the damage is irreversible."