Caixin
Jan 02, 2019 11:20 AM
ECONOMY

Larry Summers Thinks Trade War Will Last Past March Deadline

The U.S. and China are unlikely to negotiate an agreement that could end the trade war by their March deadline, former U.S. Treasury Secretary Lawrence Summers said on Tuesday, warning that the possibility of the U.S. slipping into a recession in the next two years would put even more strain on the relationship.

Earlier in December, U.S. President Trump agreed to delay a scheduled Jan. 1 hike in tariffs on $200 billion of Chinese imports from 10% to 25% until March 1, giving the two countries more time to negotiate on controversial issues like non-tariff barriers, cyber theft, and forced technology transfers.

The enormous amount of detail to wade through before a deal can be reached, the lack of trust between the two sides, and the domestic political benefits that U.S. President Trump can gain from the dispute all make an agreement before the deadline unlikely, said Summers in an interview with Caixin in Beijing.

There's a “strong political imperative” in the U.S. to keep frictions going, as Trump can continue to present himself as pressuring China on behalf of his voters, said Summers, who is an advisor to Caixin’s board of trustees.

Trump and Chinese President Xi Jinping agreed to the truce over dinner in Buenos Aires on Dec. 1. Since then, the U.S. and China have held high-level talks and are preparing to hold face-to-face meetings in January. In return for the delay in tariff hikes, China resumed buying U.S. soybeans and lowered retaliatory tariffs on U.S. auto exports imposed last summer.

“Even if an agreement is reached in principle, there are all kinds of questions as to whether it can be circumvented or avoided,” Summers said.

Tensions could be hiked up another notch if the U.S. economy enters recession sometime in the next two years, the chance of which the former U.S. treasury chief put at 50-50. Economic nationalism tends to go up in painful times as unemployment rises, he said.

“However hard-edged the United States is towards China, however much indication of protectionism there is in American policies, if we were to suffer a recession I think it would get worse.”

“Trust problems on both sides” must be resolved to reduce tensions, Summers said. While the U.S. should reassure China that it does not intend to constrain its economic growth, China needs to reassure the U.S. that it is not seeking to engage in espionage or to use cyberactivities to manipulate the U.S. economy.

Suspicion of Chinese tech companies like Huawei Technologies Co. Ltd. that want to be involved in constructing crucial network infrastructure overseas is unlikely to subside anytime soon, he said. “There's been such a problematic set of practices coming from China that I would be surprised if it wouldn't take a good while before we could get comfortable,” he said.

Huawei's Chief Financial Officer Meng Wanzhou, who is also the daughter of the company's founder, was arrested in Canada on fraud charges relating to violating the U.S. sanctions on Iran the same day Xi and Trump agreed their trade war truce. She awaits a court decision on extradition to the U.S. China has since arrested two Canadian nationals on national security grounds.

Several countries, including the U.S. and its allies Australia and New Zealand have banned the use of Huawei equipment in their 5G networks. British carrier BT Group PLC recently said it was taking out Huawei equipment from the core of a recently acquired network.

Contact reporter Ke Baili (bailike@caixin.com)

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