President Trump is increasingly acting based on his own intuition and analysis and not the advice of aides in the fraught trade war with China, five people briefed on the actions said, shattering a more cautious process that had yielded few positive results so far.
The Treasury Department’s formal announcement that it had labeled China a “currency manipulator” Monday came six hours after President Trump did it himself, on social media, the latest example of how Trump is determining his own next steps. The people describing the White House process spoke on the condition of anonymity because they were not authorized to speak publicly.
On Tuesday, Trump’s senior advisers still floated the possibility that the White House could scale back some of its economic penalties against China if leaders in Beijing offer tangible concessions.
"As difficult as things may be, and I know the markets are bit volatile, the reality is we would like to negotiate,” White House National Economic Council Director Larry Kudlow said on CNBC. His comments came the same day that Chinese leaders moved to stabilize their currency, a move that calmed investors after a sharp selloff Monday.
The one-day respite may not continue much longer. A number of White House officials say they now expect a long, drawn-out battle with Chinese leaders, as the on-again, off-again trade negotiations that began in December have shown little sign of progress.
Trump is convinced that the Chinese economy is suffering more than the U.S. economy from the conflict and that leaders will eventually back down. And he has felt validated that his hardball threats in other circumstances, including a recent tangle with Mexico over border security, seemed to get at least some results, even if they scared investors in the short term, said the people familiar with the matter.
This has left aides, many of whom have preferred for the president to be more patient, to scramble to complete directives issued by Trump. Stocks have whipsawed as Trump and China have escalated the trade conflict. Democrats, some of whom are supportive of a more adversarial economic relationship with China, have nonetheless criticized Trump’s penchant for making impulsive moves that have enraged farmers and businesses.
The practical implications of Treasury Secretary Steven Mnuchin’s move to label China a “currency manipulator” on Monday were limited. It begins a process of discussions with the International Monetary Fund about ways to address China’s behavior. But it represented the most concrete Trump administration broadside in a week that had previously been marked by twin attacks from Beijing.
First, China’s currency had weakened against the U.S. dollar, something White House officials suspected was directed by the Chinese government. And second, Chinese officials sent signals that they would not be ramping up purchases of U.S. agriculture products, as Trump had long promised they would.
Both steps made clear that Chinese leaders did not plan to make quick concessions to the White House following Trump’s surprise announcement last week that he would be imposing a 10 percent tariff on $300 billion in imports from China. Several of Trump’s advisers had warned against this, nervous that it would only provoke retaliation from Beijing and could damage the U.S. economy.
“We’re learning that maybe China has a higher pain threshold than we thought here,” said Stephen Moore, who was an economic adviser to Trump during the 2016 election and remains close to the White House. “They don’t seem to care that this is having extreme negative effects on their economy. It’s kind of a mutually assured destruction game right now.”
Trump has frequently relied on his own judgment in navigating trade disputes with other countries, a tactic that has yielded mixed results. South Korean leaders agreed to revise their trade agreement with the U.S. after Trump threatened to withdraw from an existing pact. Similarly, Canada and Mexico agreed to revise the North American Free Trade Agreement, though U.S. lawmakers have still not approved the changes.
But Trump has also tried to take charge of sensitive trade arrangements with Japan, India, and the European Union, and he has made little progress so far.
And none of those relationships is as complex or intertwined with the U.S. economy as China’s.
Trump had promised during his 2016 campaign to label China a currency manipulator, but he backed down once he took office amid pressure from top advisers. Then-National Economic Council Director Gary Cohn and others warned Trump about the economic implications of attacking China without a strategy in 2017, and Trump instead focused on passing a large tax cut law and growing the domestic economy.
But Trump pivoted sharply toward following through on his trade threats in 2018, and Cohn left shortly thereafter. Trump still has a number of senior advisers on his economic team, but he frequently ignores their advice. He has been frustrated that Mnuchin and U.S. Trade Representative Robert E. Lighthizer have not been able to extract more concessions from China since trade negotiations began in December, and he increasingly relied on his own impulses to lead the battle with China, said the people familiar with the matter.
On July 26, Trump said for the first time publicly that China probably would not cut a trade deal until after the 2020 election, as he surmised that they wanted to wait and see if he lost reelection. He repeated that view on July 29. But on July 31, he stunned Wall Street investors and even some White House advisers when he announced he was proceeding with tariffs on $300 billion in Chinese goods.
Trump and National Economic Council Director Larry Kudlow suggested later in the week that the tariffs could be lifted if China agreed to purchase agriculture goods, but their comments left the process open ended. Some White House officials had thought that negotiations with China had begun to pick up again and show some promise, but China on Monday made clear that they were not prepared to back down from their view that they would not negotiate under pressure in a way that makes Beijing look weak.
Trump’s behavior with China “is probably based on personal experience … and whatever his instincts tell him is the right thing to do,” said Bonnie Glaser, director of the China Power Project at the Center for Strategic and International Studies. “He will do things via tweet that maybe no one else in the administration knows about, and they have to scramble.”
Trump’s economic team has thinned since the beginning of his presidency. Commerce Secretary Wilbur Ross is not as heavily involved in China decisions as he was in the first year, according to people briefed on the process, and a number of Mnuchin’s senior advisers have left in the past few months. Top trade adviser Peter Navarro remains very influential inside the White House, but he is often at odds with Mnuchin and Kudlow.
White House officials were not caught off guard by China’s response on Monday, three senior administration officials said, and expected to do something. They have not specified, though, how they plan to act next. Mnuchin’s decision to label China as a currency manipulator begins a formal process of discussions with the IMF and other bodies, but it doesn’t necessarily make it easier to mobilize an international consortium to pressure China to change its behavior.
That has left the White House — and top Trump advisers — to move swiftly, shattering norms in the process. The Treasury Department issues a report twice a year in which it explains its review of foreign currencies and whether they have been improperly influenced. The most recent report was issued in late May, and it did not find China to be a currency manipulator.
Of note, Treasury’s designation of China as a currency manipulator invoked a 1988 law, but it did not find that China’s behavior had met an updated criteria from 2015 that the Treasury Department has been directed to use. Those criteria were not mentioned in the brief Treasury announcement on Monday evening.
Business executives, economists, and former government officials have said the worsening conflict between the White House and China was damaging the U.S. economy. Business investment contracted in the second quarter of 2019, and a number of White House officials are worried that the economy is beginning to slow.
“Unfortunately, the tariffs placed on Chinese goods are now starting to bite into U.S. economic growth and prosperity,” former treasury secretary Henry Paulson said in a statement on Monday.
Outside advisers and China experts have encouraged the White House to resume negotiations with Beijing, but it is unclear how Trump plans to proceed. He often announces his decisions in Twitter posts, sometimes after consulting with aides but sometimes based on his own view on how to proceed.
Trump’s willingness to rip the process away from his senior advisers has been building for months. One glimpse came in February, when Trump publicly rebuked Lighthizer during an Oval Office meeting with Chinese Vice Premier Liu He. Lighthizer was trying to negotiate an agreement with the Chinese that would take the form of a detailed “memorandum of understanding.” Trump dismissed the legal construct as toothless.
“I don’t like MOUs because they don’t mean anything,” Trump said in front of Lighthizer, He and the assembled media. “To me, they don’t mean anything. I think you are better off going into a document.”
Lighthizer attempted to clarify himself.
“An MOU is a contract,” he responded. “It’s the way trade agreements are generally used.”
It appeared the conversation would move on, but Trump wasn’t done.
“By the way, I disagree. I think that a memorandum of understanding is not a contract to the extent that we want,” Trump said.
Then, just last month, Kudlow tried to assure the public that the White House had ruled out the possibility of intervening in the U.S. dollar as part of the currency war. Kudlow said in a CNBC interview that top White House advisers had met and decided not to intervene.
Several hours later, Trump told reporters that this was not true and that he reserved the right to intervene if he wanted to.
“I could do that in two seconds if I want to,” Trump said two weeks ago. “I didn’t say I’m not going to do something.”