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Trump’s claims on China trade deal already fracturing

U.S. stock markets took a closer look at Trump's claims of progress with China and promptly sank more than 3 percent.

President Donald Trump and China's President Xi Jinping (left) attend their bilateral meeting at the G20 Summit in Buenos Aires, Argentina. on Dec. 1.
President Donald Trump and China's President Xi Jinping (left) attend their bilateral meeting at the G20 Summit in Buenos Aires, Argentina. on Dec. 1.Read morePablo Martinez Monsivais / AP

President Donald Trump's claims of a new trade agreement with Chinese President Xi Jinping showed signs of crumbling Tuesday, with senior officials seeking to play down expectations of a breakthrough and acknowledging that major provisions remained in flux.

U.S. stock markets took a closer look at Trump's claims of progress with China and promptly sank more than 3 percent as investors puzzled over competing U.S. and Chinese accounts of the outcome of the Group of 20 summit this weekend in Buenos Aires. The reversals more than erased the tepid gains Monday in reaction to Trump's initial account of what he said were promises made by the Chinese government.

Three days after Trump emerged from his dinner with Xi touting an "incredible" deal, U.S. and Chinese officials were disagreeing over the existence of a 90-day deadline for progress in new trade talks, the schedule for China to increase its purchases of American farm and industrial products, and Beijing's plans to reduce or eliminate specific tariffs.

While Trump tweeted a day after the meeting that China would "reduce and remove" tariffs on U.S. automobiles, his aides acknowledged privately Tuesday that China had made no such commitment.

"Nobody knows what the deal is," said one top White House adviser, who was among six administration officials interviewed for this story who spoke on the condition of anonymity to describe internal deliberations.

"It doesn't seem like anything was actually agreed to at the dinner and White House officials are contorting themselves into pretzels to reconcile Trump's tweets (which seem if not completely fabricated then grossly exaggerated) with reality," JPMorgan wrote in a trading note.

Late Tuesday in Washington, after doubts about the deal blew into the open and the market plunged, the Trump administration was able to take some solace from a Chinese Ministry of Commerce statement that acknowledged hopes of meeting a 90-day timetable.

A ministry spokesman described the presidents' meeting as "very successful" and said the government was "very confident" about the agreement being implemented.

"The economic and trade teams will actively push forward with negotiations, in accordance with a clear timetable and route map, within 90 days," the spokesman said, according to a statement published on the ministry's website Wednesday morning.

Without offering details, the statement added that "the Chinese side will start implementing the specific items both sides have agreed on, and the sooner the better."

The confusion reflects the distinctive style of a president who has abandoned the traditional process of developing and executing government policies.

"It's funny how far the administration has gotten on bravado and uncertainty - the 'crazy uncle' strategy with almost no organization, no whole-of-government approach, insufficient preparation and no talking points," said Scott Kennedy, a China expert at the Center for Strategic and International Studies. "The strategy has thrown the fear of Marx into the Chinese. They have been knocked off their seats."

For Trump, uncertainty is a feature, not a bug, of his approach to diplomacy. The president uses his tweets to keep Chinese officials off balance, but they are having an equally unsettling effect on U.S. business groups and White House allies, according to a White House official and an executive with a prominent industry group.

The Dow Jones industrial average dropped 799 points, or 3.1 percent, Tuesday, to close at 25,027. The Standard & Poor's 500-stock index fell 3.2 percent, and the tech-heavy Nasdaq gave up 3.8 percent.

Trump insists to advisers that China's economy is hurting because of his "America First" trade offensive and that Beijing has more to lose than the United States does in a protracted commercial conflict. The downturn in U.S. financial markets, he says, is just temporary.

In a series of Twitter posts Tuesday, the president threatened to slap additional import penalties on Chinese products if China did not make major changes in its economic relationship with the United States.

"President Xi and I want this deal to happen, and it probably will," Trump wrote. "But if not remember, I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power."

Tuesday night, the president bore down on the theme, tweeting: "We are either going to have a REAL DEAL with China, or no deal at all - at which point we will be charging major Tariffs against Chinese product being shipped into the United States." He added that he believes the two sides will make a deal because "China does not want tariffs."

The tweets were an abrupt departure from Trump's comments aboard Air Force One on his way home from Buenos Aires, when he told reporters that he and Xi had reached the framework of a deal that would come together in 90 days.

"It's an incredible deal," Trump said then. "It goes down, certainly, if it happens, it goes down as one of the largest deals ever made."

He later said China had committed to buying large amounts of U.S. agricultural products and removing all tariffs on U.S. automobiles, a huge shift from its current 40 percent penalty. Chinese officials did not confirm any of these details. Nor would they acknowledge that there was a 90-day deadline under which they were operating.

In the past 24 hours, there were signs, too, that White House officials were beginning to backpedal - as Trump’s tone also shifted.In his Twitter posts Tuesday, the president said the talks might be extended beyond 90 days.

Meanwhile, National Economic Council Director Larry Kudlow said that there wasn't an agreement for China to remove auto tariffs but that he expected China to eventually do it as a measure of good faith.

He also said China's vice premier, Liu He, had told him there would be changes made "immediately" to show that the Chinese were serious about a new agreement. But Kudlow acknowledged Tuesday that so far there hasn't been any evidence of concrete steps being taken.

Another person briefed on the talks said the Chinese never used the word "immediately," with Liu instead referring to actions that already had been announced by Xi as part of an economic restructuring.

Trump traveled to Buenos Aires for the G-20 summit bruised by the fallout from General Motors' announcement of major plant closures and sudden stock market weakness.

The president was determined to show results from the dinner with China, telling advisers that there had to be concrete wins, according to two administration officials.

Kudlow told reporters Monday that he, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert E. Lighthizer met with Liu on Friday and Saturday in hastily arranged gatherings to prepare for the dinner.

The preliminary sessions, which followed weeks of inconclusive exchanges of written ideas for the talks, gave Kudlow the sense that China was committed to cutting a real deal and would take some steps, such as the purchase of U.S. goods, "immediately," he said.

Mnuchin, speaking at a Wall Street Journal conference, said the White House team then gathered to brief Trump. The president, according to Mnuchin, told them he wanted to hear it all from Xi himself to see if it was genuine and then would decide whether to proceed.

Mnuchin said the Chinese had committed to address 142 different issues, which they had derived from an initial U.S. demand in May. The latest response impressed U.S. officials with its specificity.

It was Trump who decided aboard Air Force One what would be released publicly after the meeting, Kudlow said. And it was an 11 p.m. Twitter post Sunday where Trump first claimed that China would remove its tariffs on U.S. autos.

Less than 24 hours later, Kudlow told reporters that China had not promised to do so but that he was hopeful it would. By Tuesday, Kudlow said such a step would be a good sign, a major weakening of Trump's initial statement.

Likewise, Mnuchin returned from Buenos Aires on Monday and said China had committed to purchasing $1.2 trillion in U.S. goods and services - an amount roughly equal to nine years' worth of China's current purchases of American-made products.

Mnuchin on Tuesday conceded that the figure covered multiple years.

A side-by-side comparison of the two governments' post-meeting statements prepared by Bloomberg News also revealed significant differences. The Chinese have not acknowledged a 90-day deadline for the talks or said that they plan to "immediately" increase purchases of U.S. farm goods.

Chinese officials are puzzled and irritated by the administration's shaky handling of the meeting's aftermath, according to a former U.S. government official who has been in contact with them. Even before the Buenos Aires talks, Trump last month stated incorrectly that Beijing "got rid of" the Made in China 2025 program of subsidized technology development in response to his objections.

The comments by the president and his top advisers over the past 48 hours have only added to China's confusion about its negotiating partners.

“You don’t do this with the Chinese. You don’t triumphantly proclaim all their concessions in public. It’s just madness,” the former official said, speaking on the condition of anonymity to describe confidential discussions.