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North Korea gives China leverage in U.S. trade talks

White House advisers are working on a deal that could avert the tariffs that President Donald Trump is threatening to impose on $ 50 billion in Chinese goods. | Nicolas Asfouri/AFP/Getty Images

U.S.-China trade talks have bounced between Washington and Beijing in recent weeks, but the real breakthrough could happen after President Donald Trump meets with North Korean leader Kim Jong Un in Singapore.

Trump has consistently linked his trade demands on China with its willingness to help put a check North Korea’s nuclear ambitions. And although Commerce Secretary Wilbur Ross returned from a trip to Beijing without any deals to announce, senior administration officials appear upbeat about the direction of the talks, according to one administration source.

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“The flight back from Singapore goes right through China, so I wouldn’t be at all surprised” if Trump stops to meet with Chinese President Xi Jinping, said Scott Kennedy, a China expert at the Center on Strategic and International Studies.

“That personal interaction between the two does seem to be so critical, especially on this,” he added.

Trump’s closest advisers are still working on a deal that could avert the tariffs that Trump is threatening to impose on $ 50 billion in Chinese goods.

U.S. trade negotiators have given China a long list of agricultural trade barriers that need to be lifted, a source familiar with the talks told POLITICO. And a business source briefed on the talks said the U.S. is pushing China to commit to purchase roughly $ 100 billion of U.S. goods over a period of two years, instead of the original goal of $ 200 billion. On Tuesday, The Wall Street Journal reported that China offered to buy nearly $ 70 billion of farm and energy goods if the U.S. drops its tariff threat.

Wilbur Ross, the U.S. and Chinese delegation are pictured. | Getty Images

And so far this week, the president’s usual rapid-fire Twitter commentary on trade with China has remained largely quiet — which may indicate that he is letting the negotiations play out.

In another politically sensitive matter, China also wants the U.S. to lift harsh sanctions on ZTE, one of its largest telecommunications companies. Trump said he would consider lifting a seven-year ban on U.S. companies doing business with the firm, which ZTE said would shutter the business, in favor of a different type of punishment.

“The Chinese indicated that they were willing to purchase a lot of ag and energy products in exchange for making ZTE and the [tariff threat] go away,” the business source familiar with the talks said. “That’s the deal now that’s really before the president.”

White House economic adviser Larry Kudlow on Wednesday indicated the deal wasn’t quite as black and white as getting an agreement for the Chinese to buy more U.S. goods.

“This is not the Chinese government buying a bunch of natural gas and soybeans from America,” he said at a briefing on the upcoming G-7 summit in Canada. “This is about reducing tariff rates and non-tariff barriers that will permit the increase in actual export sales to China. That’s the actual mechanism.”

Whatever the outcome, the effort to deflate trade tensions has focused more on the trade imbalance with China rather than the administration’s original goal of cracking down on China’s technology transfer policies, which the administration says has resulted in billions of dollars’ worth of sensitive technology taken from U.S. companies.

But the scope of what is being discussed is sure to disappoint China hardliners loathe to see the U.S. back off ZTE, as well as congressional leaders, and even U.S. businesses that want to see China make meaningful commitments to ease up its state-intervention policies.

“There’s an inconsistency in the U.S. message that we want Chinese reform and we want managed trade,” Derek Scissors, a China scholar and critic at the American Enterprise Institute, said. “But there’s not an inconsistency in the president’s message, he wants managed trade, he doesn’t give a crap about reform.“

There is little indication that Trump is backing off a plan to have a final list of Chinese goods that would be hit with tariffs ready by June 15 — just a few days after the June 12 Singapore meeting.

“North Korea can clearly throw this off,” said Scissors. “It seems that the president thinks that the Chinese are the swing factor in whether the North Koreans cooperate or not.”

The talks last weekend between Ross and Chinese Vice Premier Liu He focused on the terms of purchase of energy products, which was a “pretty tough thing to negotiate,” said Scissors, who has consulted the administration on China trade issues.

Less attention was paid to agricultural products as the discussion in Beijing focused more on barriers China puts up against U.S. farm goods entering its market rather than specific quantities that China would be willing to ramp up purchases, said one source familiar with the talks.

The one bright spot in the U.S.-China energy trade is oil. U.S. oil production, spurred by hydraulic fracturing and horizontal drilling techniques in West Texas, North Dakota and elsewhere, is growing exponentially as China’s energy appetite grows apace. The dynamic points to Exxon Mobil, Chevron and other oil companies shipping more barrels across the Pacific even if the U.S. can clinch a deal right now, analysts said.

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China outpaced the U.S. to become the world’s largest oil importer last year, according to the U.S. Energy Information Administration.

Another source briefed on the talks said the scope of energy products the U.S. wants China to buy has expanded beyond liquefied natural gas to coal and oil. China has an immense appetite for LNG, but new U.S. supply, including through a major project in Alaska, won’t be ready for long-term contracts until 2022 and beyond.

Treasury Secretary Steven Mnuchin said last month that China could double its energy purchases with about $ 50 billion to $ 60 billion of additional imports of U.S. goods each year for the next three to five years.

“What Mnuchin is looking to illustrate is something that’s going to happen naturally anyhow,” said Jan Stuart, global energy economist at Cornerstone Macro. “It’s the world’s fastest growing exporter with the world’s fastest growing importer. It’s a natural fit.”

Ben Lefebvre contributed to this report.

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