U.S.-China Trade Talks End With No Deal

Wendy Cutler on CNN

The following is a full transcript of ASPI Vice President Wendy Cutler's interview with CNN's Brooke Baldwin and Chief Economist for Grant Thornton Diane Swonk on CNN Newsroom on the potential outcomes of trade negotiations with China, given the recent increase in tariffs to 25% by President Trump. 

Brooke Baldwin: And speaking of the tariffs, reportedly, the 25% tariffs will not hit goods that left Chinese ports before the midnight deadline, but once the new tariffs do take effect, one analysis shows exactly how much Americans could feel it. The consulting firm Trade Partnership estimates the entire cost of what the president is doing from the 25% tariff to existing taxes on high-tech imports from China would eliminate more than 930,000 jobs and raise expenses for the average family of four by nearly $800 a year. Diane Swonk is Chief Economist for accounting firm Grant Thornton and Wendy Cutler once served as the Acting Deputy of the U.S. Trade representative and is now Vice President of the Asia Society Policy Institute. So two of the smartest ladies on all of this are with me now, and so thank goodness for that. Wendy, let me just start with you here. Because obviously reading The New York Times piece last night, you made the point that these talks are different to those that have come before and if the negotiations fail, why do you say that there is no going back to the status quo?

Wendy Cutler: Well, I think just because of the tariffs that are in place, we're in a very different place with China. If there is no deal, I think we're going to see those tariffs in place for a long time. And those are going to hurt China, but they’re also going to hurt the United States.

Brooke Baldwin: But Trump tweeted, and I’m just going to read part of his tweet: “tariffs will make our country much stronger. Not weaker.” Diane, but don't both countries have a lot to lose? You tell me how American consumers will be hit hardest in a full-blown trade war.

Diane Swonk: Well, they are the ones that bear the costs of tariffs, which are taxes on American consumers, and the retaliation, as we’ve already seen, has hit farmers. We’ve seen bankruptcy surges, so even as they talk about doing more subsidies to help out more farmers, many of the smaller farmers have already been hard hit. And that’s why you’re seeing many of the senators that represent some of these farm states, like Iowa, come out against the tariffs because of the pain that is already inflicted from retaliation from China. And the other issue is collateral damage. We've seen the slowdown in China at the end of the last year, and beginning of this year showed up from Europe to emerging markets to Japan. And those were the markets that were also hit by the escalation of a trade war, a full-blown trade war, and that’s where we're vulnerable, is the spill-over effects. This is not the Japan-U.S. trade war, where Japan, when they had a trade war with us, had a very limited impact on the rest of the world. It actually is something where the tentacles of China are in nearly every other economy out there, and so the spill-over effects are quite dramatic and come back to haunt us. This is not something that’s a one-off, this is something that accumulates over time. And remember, the administration has not lifted a tariff that it has levied so far, even in places where we've come to a trade agreement, like Mexico—a tentative agreement—like Mexico or Canada, and is threatening more tariffs. And so there is a sense there is no winning in negotiating with us on these bilateral trade agreements.

Brooke Baldwin: So with that said, Wendy, two for you, really. One, why is the market just even up a smidge right now and, two, if this has been ‘art of the deal’ negotiating—we saw the president yesterday boasting about the big beautiful letter from president Xi—what happens if China totally walks away from the table?

Wendy Cutler:  Well, if China walks away from the table, we're not going to get the market opening that we've achieved in these talks already. And let me just say, a lot of progress has been achieved in the talks. As of a week ago, we just had a handful of issues left, but now the landscape is a lot more complicated. In terms of the markets, I think something that was said in the introduction of this piece needs to be kept in mind, and that is the new tariff increases have been applied to goods that are on the water now. So they haven't entered the United States. So defacto there is a couple more weeks before these goods will enter the U.S. Customs territory and subject to these high tariffs, so maybe the markets feel there is a little more time for this deal to be made. 

Brooke Baldwin: Is there more time? May I follow up? Is there more time for the deal to be made?

Wendy Cutler: I think so. I think there are a few more weeks because we won't be feeling the impact of this new tariff increase. I also think that China now, [vice Premier] Liu He has got to go home and have some serious talks with Xi Jinping and the rest of the leaders in China to figure out how they want to proceed. Do they want to impose counter-measures now and really up the ante or do they want to find a way to reach a deal, recognizing that a lot of the things we're asking China to do are in China's interest?

Brooke Baldwin: Mm-hmm. Diane, you had made the point that much of what we're talking about is no longer produced here. So why can't we just buy and make everything in the U.S., as the president has tweeted?

Diane Swonk: Well and that is the real issue, is that the kind of investment it would take, the kind of time and lag to produce these things here again and the cost, would mean automated and not a lot of jobs generated. So we would have a big hit nonetheless, even if we tried to bring it all back. So that is not a realistic way to think about things. And I want to make one other point that I think is important here is the last part of this, although it may be in China's interest economically, it might not be in Xi's interest in how’s he’s consolidated power. And what I worry about is that we are going to see, because it is a bilateral agreement, the rest of the world agrees with us, they don't like how China does business and, because it’s bilateral, the chances of them breaking the agreement in some way down the road I think is very high, given how XI has consolidated power. And what I worry about out there is that this entrenches us in trade wars going forward, because the only enforcement mechanism is tariffs instead of a multilateral approach where we’d the pressure of the peer group. And that issue of how long it would take to bring production back, and what it would look like even if it did in the interim, would be costly to the U.S. economy.

Brooke Baldwin: Which we don't want at all. Diane Swonk, Wendy Cutler, ladies, thank you so much.

Watch the interview on CNN Newsroom.