USTR Robert Lighthizer has filed the official notification with the federal register for the increase in Section 301 tariffs from 10% to 25% effective Friday (full pdf below). Additionally Reuters has exclusive details of the collapse in U.S-China trade talks.
As most CTH readers are aware, Lighthizer has focused heavily on the enforcement mechanisms within the trade talks. [Previous Bookmark] Apparently, when the 150 page draft agreement was presented to the Chinese politburo, Beijing balked at allowing the U.S. to hold controlling enforcement over the trade agreement terms.
The fallback presentation from Vice-Chairman Liu was: we cannot put the binding enforcement mechanisms in writing, you’ll have to ‘trust us’ to honor the agreement; at which time Lighthizer said no-way.
WASHINGTON/BEIJING (Reuters) – The diplomatic cable from Beijing arrived in Washington late on Friday night, with systematic edits to a nearly 150-page draft trade agreement that would blow up months of negotiations between the world’s two largest economies, according to three U.S. government sources and three private sector sources briefed on the talks.
The document was riddled with reversals by China that undermined core U.S. demands, the sources told Reuters.
In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: Theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.
[…] The stripping of binding legal language from the draft struck directly at the highest priority of U.S. Trade Representative Robert Lighthizer – who views changes to Chinese laws as essential to verifying compliance after years of what U.S. officials have called empty reform promises.
[…] Lighthizer and U.S. Treasury Secretary Steven Mnuchin were taken aback at the extent of the changes in the draft. The two cabinet officials on Monday told reporters that Chinese backtracking had prompted Trump’s tariff order but did not provide details on the depth and breadth of the revisions.
Liu last week told Lighthizer and Mnuchin that they needed to trust China to fulfill its pledges through administrative and regulatory changes, two of the sources said. Both Mnuchin and Lighthizer considered that unacceptable, given China’s history of failing to fulfill reform pledges. (read more)
Vice-Chairman Liu is coming back to DC tomorrow for discussions; he will likely try to salvage the agreement, but without enforcement mechanisms previously agreed-to it’s highly unlikely any progress can be made.
Here’s where it gets interesting. Ambassador Lighthizer has filed the Section 301 update raising the tariffs from 10% to 25% effective Friday.
The likely response from China will be additional tariffs on U.S. goods and/or refusal to purchase U.S. agriculture products. Their strategy will be to get key BIG AG senators, and the U.S. Chamber of Commerce, to target fire toward President Trump over diminished farm prices.
CTH anticipated this dynamic in 2016. Any Chinese pull-back from U.S. farm purchases hits the Wall Street multinational corporations hardest.
Multinational corporations, BIG AG, are now invested in controlling the outputs of U.S. agricultural industry and farmers. This process is why food prices have risen exponentially in the past decade.
The free market is not determining price; there is no “supply and demand” influence within this modern agricultural dynamic. Food commodities are now a controlled market just like durable goods. The raw material (harvests writ large) are exploited by the financial interests of massive multinational corporations.
Because the domestic supply-side agricultural market is based on perishable goods; this predictable Chinese response has a rapid downstream impact. The wholesale price of domestic food drops rapidly inside the U.S. as the supply now exceeds the market. The multinational mega-food conglomerates will be apoplectic.
The prices of imported durable goods (stuff from China) will increase, slowly over time; depending on the supply chain for the specific product sector. However, if China retaliates by stopping import of U.S. agriculture products, the prices for U.S. domestic highly-consumable goods drops quickly.
In this scenario Wall Street is hardest hit. Other than the AG sector, Main Street -and the U.S. consumer therein- actually benefits.
The Big Club will go bananas.