FINANCIAL TIMES
8-6-18

            

Inside the chaos of Donald Trump’s trade wars

 

Officials describe a White House in disarray with fierce infighting, no process for decisions and a president without a strategy

 

Demetri Sevastopulo, Sam Fleming and Shawn Donnan in Washington

 

Steven Mnuchin was having a tough day. For several months the Treasury secretary had tried to co-ordinate the US side in trade negotiations with China. But on May 29, he found himself explaining to Liu He, the Chinese vice-premier, why President Donald Trump had just reneged on a deal aimed at preventing a trade war.

 

Two weeks earlier, Mr Mnuchin hosted Mr Liu at Café Milano, a Georgetown restaurant popular among Washington’s diplomatic corps and Trump officials. Four days after the dinner, Mr Mnuchin announced that the threatened trade war was now “on hold” and that the US would not place tariffs on $50bn of Chinese goods.

 

Yet, as he returned to work after the Memorial day weekend, he was met with the news that Mr Trump had resurrected the tariffs. In a stark example of how the president can blindside his officials, Mr Mnuchin had been told the announcement would come the next day, according to a senior official.

 

The Trump administration is now fighting trade battles on several different fronts with both friends and rivals, leaving governments scrambling to decipher what is negotiating bluster and what is actual policy.

 

As Mr Trump arrived at the G7 summit in Canada on Friday some of Washington’s closest allies were irate at new US tariffs on steel and aluminium. So sharp are the tensions that Mr Trump at one stage considered not going.

 

Inside the administration, the view described by a number of current and former officials is one that more resembles chaos. The erratic course of the trade talks has been partly driven by fierce infighting among officials who have been sarcastically dubbed “The Magnificent Seven” by critics.

 

There is little, if any, policy process to guide the US side. Most of all, there is a president determined to keep his campaign promise to get tough on trade but with little consensus on how to proceed.

 

As the debate within the administration has intensified, Mr Mnuchin has started to play a bigger role — especially after Congress passed a tax reform bill last December. Several people familiar with the situation say Mr Liu had asked Hank Paulson, the former Treasury secretary, and other US financiers to convince him to play a bigger role. Some hoped he would tamp down the factional fighting particularly as Gary Cohn, the pro-free trade head of the National Economic Council, was about to resign from his role because of his opposition to the imposition of tariffs.

 

It has not played out that way. Following Mr Mnuchin’s “on hold” remark, Wilbur Ross, the commerce secretary, said the deal was not “definitive” and tariffs were still on the cards. Peter Navarro, a trade adviser to the president who had failed to turn up for the Café Milano dinner following several fights with Mr Mnuchin earlier in Beijing, described the Treasury secretary’s comment as “an unfortunate soundbite”.

 

Some former officials are even more direct. Steve Bannon, the former White House strategist, says China was scared of Mr Trump. “You are always going to have guys like Mnuchin who fumble the ball,” he told the Financial Times.

 

But others argue that Mr Mnuchin is the only official who understands what is feasible in terms of a deal. “The Chinese like Mnuchin because he realises what other administration officials won’t admit — that the tariff threats have put us in a box and the only way out of the box is by negotiating towards an acceptable deal,” says Rob Porter, the former White House staff secretary who ran a weekly trade meeting to help co-ordinate policy among a diverse group of officials.

 

Mike Pompeo, secretary of state, is concerned that the trade threats are making relations more difficult with a host of countries, including China, which risked jeopardising the summit between Mr Trump and North Korea’s Kim Jong Un next week in Singapore, according to five people.

 

“It’s like a bad episode of Celebrity Apprentice,” says Chris Johnson, a former CIA China analyst. “They’re all gaming how to get back in the centre circle on a daily basis.”

 

The recent disarray over trade has echoes of the early days of the administration when there was no inter-agency process and decisions were influenced by whomever gained access to Mr Trump. The trade discussions began to adopt more structure after the start of Mr Porter’s weekly meeting.

 

“People were so desperate for structure that half the cabinet and most senior advisers showed up to Porter’s meetings. Everyone wanted a seat at the table. For a time it was like the biggest show in the West Wing,” says a former administration official.

 

He adds that the process ended after Mr Porter left the White House in February when he was accused of spousal abuse, which he denies. One reason for the meeting’s demise was because the participants, especially trade representative Robert Lighthizer, did not want to have to explain themselves to a big group of rivals. The end of the meetings has resulted in officials reverting to more Machiavellian ways. “Several times, Ross has negotiated with the Chinese without keeping other people in the loop. But he never gets away with it,” says a person familiar with the internal deliberations.

 

In one example, Mr Ross tried to negotiate a steel-related deal that resulted in him receiving a blunt dressing down from Mr Trump.

 

The lack of structure also reflects Mr Trump’s background running a freewheeling family business. “The person in charge has never seen process,” says one individual close to the White House.

 

Chris Ruddy, a friend of Mr Trump, says the president had made clear during the campaign that he was his own chief adviser and own general. “It is an unitary organisation chart that starts and ends with Donald Trump. He doesn’t want a lot of intermediaries.”

 

With officials rising and falling, it has been almost impossible for governments to know who to make their case to. Beijing has searched for people to act as a bridge, including Blackstone chief executive Steven Schwarzman.

 

“The US is effectively in a state of anarchy,” says Lu Xiang at the Chinese Academy of Social Sciences. “We always say Trump is a businessman, but even small shopkeepers know their most important asset is their reputation. Trump is harming his own reputation and that of the US.”

 

Beyond the medieval court-style jockeying, Michael Smart, a former White House official, says the Trump officials were broadly split into two camps.

 

“There are some in the administration who believe that if we actually lower the hammer and apply these tariffs, the market access discussion is done [because the Chinese will walk away],” he says. “There is another camp that says you won’t have a good deal unless you impose tariffs and inflict pain. The latter group seems to be the majority.”

 

Most experts see the latter camp as Mr Lighthizer, Mr Navarro and to a lesser degree Mr Ross, while the first group is mainly of Mr Mnuchin and Larry Kudlow, the new head of the National Economic Council.

 

Mr Navarro and Mr Lighthizer also believe that Mr Mnuchin and Mr Ross are too eager to secure short-term deals aimed at reducing the trade deficit at the expense of broader measures to change the way the Chinese economy operates.

 

Mr Navarro told the FT there were “two structural problems” that needed solving. “One is the chronic and persistent trade deficit with China that is resulting in a massive transfer of wealth, factories, and jobs from American shores. The second problem is to defend the crown jewels of American technology and intellectual property against Chinese theft, acquisition by State-backed funds, and forced transfer,” he says. “You can’t solve one problem by trading off the other so the whole notion of China simply agreeing to buy more American products in exchange for America surrendering its rights to impose Section 301 tariffs and investment restrictions in defence of our technologies and IP is a non-starter.”

 

The limits of Mr Mnuchin’s influence were on display in Whistler, Canada last weekend at a G7 finance ministers meeting, where he was upbraided for slapping tariffs on allies.

 

At the same time, Mr Ross was in Beijing trying to negotiate a deal to sell more to China. Dennis Wilder, a former White House Asia adviser, says that when the Chinese asked Mr Ross if he could guarantee there would be no tariffs, he replied that he had “no authority” in that area.

 

Another person believes the Chinese were baffled by the whole situation. “They tried to embrace Mnuchin and do their part to anoint him the leader,” he says. “Then Ross leads a delegation but they know his stock has been up and down. They don’t want to deal with Lighthizer, but he gives the intellectual construct to what Trump thinks.”

 

Max Baucus, a former US ambassador to China, says Beijing saw Mr Trump as weak because he was “very inexperienced and impulsive”.

 

Some experts say Mr Trump has become emboldened because few of his actions have created havoc in the markets. One person close to the White House says the danger now was that he was increasingly not listening to his advisers and was vaulting impulsively from decision to decision, sometimes without any vetting.

 

“Even when his actions anger friends and allies, Trump doubles down, never admits a mistake or concedes a weakness. He has decided that he has to take the reins on trade himself,” he says. “Nobody speaks for the president on trade because he hasn’t empowered anyone. But he can’t even speak for himself because he hasn’t decided what to do yet.”

 

But allies of the president argue that Mr Trump is upending the orthodox order in a way that will produce results.

 

“He looks at the trade landscape and knows that with the established order America loses, so we lose nothing disrupting it. The china is all set, so pull the tablecloth out from under it and if a few things break, so be it,” says one senior official.

 

“Trump is the one who ultimately calls the shots, and I think people have to understand that.”

 

Additional reporting by Tom Mitchell in Beijing