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China defiant toward U.S. on trade, Kudlow urges strong enforcement steps

[May 13, 2019] By Humeyra Pamuk and Ben Blanchard

WASHINGTON/BEIJING (Reuters) - The United States and China appeared at a deadlock over trade negotiations on Sunday as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any "bitter fruit" that harmed its interests.

The trade war between the world's top two economies escalated on Friday, with the United States hiking tariffs on $200 billion worth of Chinese goods after President Donald Trump said Beijing "broke the deal" by reneging on earlier commitments made during months of negotiations.

White House economic adviser Larry Kudlow told the "Fox News Sunday" program that China needs to agree to "very strong" enforcement provisions for an eventual deal and said the sticking point was Beijing's reluctance to put into law changes that had been agreed upon. Kudlow said the U.S. tariffs would remain in place while negotiations continue.

Beijing remained defiant.

"At no time will China forfeit the country's respect, and no one should expect China to swallow bitter fruit that harms its core interests," the People's Daily, a newspaper controlled by the Chinese ruling Communist Party, said in a commentary on Monday.

It said Beijing was open to talks but would not yield on important issues of principle.

China's nationalist Global Times tabloid said in an editorial on Monday that the country had no reasons to fear a trade war.

"The perception that China cannot bear it is a fantasy and misjudgment," the commentary said.

"If they weren't being seriously provoked, the Chinese people would not favor any trade war. However, once the country is strategically coerced, nothing is unbearable for China in order to safeguard its sovereignty and dignity as well as the long-term development rights of the Chinese people."

On Sunday, Trump sought to portray the United States as being in an advantageous position.

"We are right where we want to be with China," Trump wrote on Twitter, saying U.S. purchasers of Chinese goods could either buy them from domestic manufacturers or from other nations.

Trump also repeated an erroneous statement that the United States would be taking in "Tens of Billions of Dollars in Tariffs from China."

The tariffs are not paid by the Chinese government or by firms located in China. They are paid by importers of Chinese goods, usually American companies or the U.S.-registered units of foreign companies. These often pass on the costs to customers, mostly manufacturers and consumers in the United States.

Kudlow, when asked who was paying, said "both sides will suffer on this," contradicting Trump, although he added that the U.S. economy should be able to cope.

"We're in terrific shape in order to correct 20 years plus of unfair trading practices with China," Kudlow said. "... This is a risk we should and can take without damaging our economy in any appreciable way."

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President Donald Trump and China's President Xi Jinping meet business leaders at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj/File Photo

G20 SUMMIT

Kudlow said there is a "strong possibility" that Trump will meet Chinese President Xi Jinping at a G20 summit in Japan in late June.

Until last week, there were expectations Trump and Xi would sign a trade deal at the summit. However, the trade talks suffered a major setback last week when China proposed extensive revisions to a draft agreement. Beijing wanted to delete prior commitments that Chinese laws would be changed to enact new policies on issues from intellectual property protection to forced technology transfers.

Vice Premier Liu He, China's top economic adviser, sought to defend the changes in talks with senior U.S. officials in Washington on Thursday and Friday, arguing that China could accomplish the policy changes through decrees issued by its State Council, or cabinet, sources familiar with the talks said.

U.S. Trade Representative Robert Lighthizer rejected that, telling Liu that the United States was insisting on restoration of the previous text.

"We would like to see these corrections in an agreement which is codified by law in China, not just a State Council announcement. We need to see something much clearer. And until we do we have to keep our tariffs on," Kudlow said.

China strongly opposes the latest U.S. tariff hike, and must respond to that, Liu told reporters on Saturday.

Kudlow said on Sunday he expected retaliatory tariffs to kick in but that it had not yet happened.

Trump has ordered Lighthizer to begin imposing tariffs on all remaining imports from China, a move that would affect about an additional $300 billion worth of goods.

Lighthizer said a final decision on that has not yet been made but it would come on top of the Friday tariff rate increase to 25% from 10% on $200 billion worth of Chinese imports.

U.S. farmers, a key constituency of Trump, have been among the hardest hit in the trade war, with soybean shipments to China dropping to a 16-year low in 2018.

(Reporting by Humeyra Pamuk and Ben Blanchard, additional reporting by Brenda Goh in Shanghai and Arshad Mohammed in Washington; Writing by Humeyra Pamuk; Editing by Lisa Shumaker, Rosalba O'Brien and Will Dunham)

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