The inside story of how Donald Trump went soft on China

Gary Cohn, the former president of Goldman Sachs and US President Donald Trump’s top economic adviser in the White House, and Robert Lighthizer, the US trade representative, had worked for months to get Trump to agree to authorize an intellectual property inquiry into China’s trade practices. It was a case where Trump could flex his antitrade muscle without blowing up a trade agreement. The authority came from section 301 of the Trade Act of 1974, which gave the president power to unilaterally institute punitive trade restrictions on countries that engage in unfair trading with the US.

The Chinese broke every rule. They stole everything, from tech companies’ trade secrets to pirated software, film and music, and counterfeited luxury goods and pharmaceuticals. They bought parts of companies and stole the technology. They stole intellectual property from American companies that had been required to move their technology to China to operate there.

Cohn considered the Chinese dirty rotten scoundrels. The administration estimated China had committed $600 billion in intellectual property theft.

A 301 investigation, 301 for short, would give Lighthizer one year to determine whether the office of the US trade representative should open a formal investigation of China. If so, Trump would have the authority to impose tariffs, sanctions and other measures against China. The Europeans, Japanese and Canadians would join the US in a massive, coordinated effort against Chinese intellectual property violations.

During an August 2017 meeting in the residence with his economic and trade teams, Trump balked. He had just talked to Chinese President Xi Jinping. He didn’t want to target China. “We’re going to need their help for North Korea,” he said. “It’s not just one UN Security Council vote. We’ll need their help on an ongoing basis. I want to take all the references to China out of the speech.” He did not want to jeopardize his great relations with President Xi.

Rob Porter, former staff secretary and organizer of presidential paperwork, said the short two-page memo mentioned China five times, and only China. It was all about China as they had been discussing for months.

“No, no, no,” Trump said. “I don’t want to make it China-specific. Let’s just do it for the whole world.”

Under the law, these investigations have to be about particular unfair trade practices by a specific country. “In this case it’s China,” Porter said. “We can’t get around the fact.”

“Well, okay,” the president said, “I can sign whatever, but I don’t want to mention China in the remarks.”

“We can’t explain what this is without mentioning that we’re targeting China.”

Okay, Trump said. In his public remarks, he said, “The theft of intellectual property by foreign countries costs our nation millions of jobs and billions and billions of dollars each and every year. For too long, this wealth has been drained from our country while Washington has done nothing. . . . But Washington will turn a blind eye no longer.” He made one mention of China.

Cohn and Porter hoped signing the memo authorizing a 301 investigation would divert Trump from imposing steel and aluminium tariffs immediately. Whenever either of them would challenge Trump’s conviction on the importance of trade deficits and the need to impose tariffs, Trump was immovable. “I know I’m right,” he said. “If you disagree with me, you’re wrong.”

Steel and Aluminium tariffs

Cohn, then director of the National Economic Council, knew the real battle was going to be over tariffs, where Trump had the most rigid views and where he could do the most damage to the US and world economies. He shoveled all the data he could to the president about how tariffs on imported steel would be a disaster and hurt the economy.

A 17-page document that Cohn sent contained a chart showing the minuscule revenue earned in 2002–03 when former president George W. Bush had imposed steel tariffs for similar reasons. It showed that the revenue that came in was $650 million. That was .04% of the total federal revenue of $1.78 trillion. The estimated revenue from a 25% steel tariff would now be $3.4 billion, or .09% of expected total revenue of $3.7 trillion for 2018. Tens of thousands of US jobs had been lost in industries that consumed steel, Cohn said, and produced a chart to prove it.

Trump had three allies who agreed with him that trade deficits mattered: secretary of commerce Wilbur Ross, Peter Navarro, director of the National Trade Council, and Bob Lighthizer, the US trade representative. Navarro said that the data did not include the jobs created in the steel mills under the Bush tariffs of 2002–03. “You’re right,” Cohn said. “We created 6,000 jobs in steel mills.”

“Your data is just wrong,” Navarro said. Trump was determined to impose steel tariffs. “Look,” Trump said, “we’ll try it. If it doesn’t work, we’ll undo it.”

“Mr. President,” Cohn said, “that’s not what you do with the US economy.” Because the stakes were so high, it was crucial to be conservative. “You do something when you’re 100% certain it will work, and then you pray like hell that you’re right. You don’t do 50/50s with the US economy.”

“If we’re not right,” Trump repeated, “we roll them back.”

The turnaround

In a meeting in January 2018, Navarro, Ross, Cohn and Porter gathered in the Oval Office. After months of arguing about tariffs from entrenched positions, debates had become heated and sharp. Cohn, backed by Porter, rehashed the economic arguments and the geopolitical national security arguments. He talked about how tariffs risked roiling the markets and jeopardizing a lot of the stock market gains. He said the tariffs would be, in effect, a tax on American consumers. Tariffs would take away a lot of the good that Trump had done through tax and regulatory reform.

“You’re the globalist,” Trump said. “I don’t even care what you think anymore, Gary. Trump shooed him away.” Cohn retreated to a couch… The meeting broke up without a real resolution except to remind Trump that he had signed a decision memo to move forward on the 301 investigation with China and announced it. That had to come before steel tariffs. That was the strategy and agreement.

After 6.30 on the night of Wednesday, 28 February 2018, commerce secretary Wilbur Ross and Peter Navarro went to the Oval Office and convinced the president to move ahead with steel tariffs before the 301 investigation was complete, imploding the whole trade strategy. Ross had earlier produced a study maintaining that the rising imports of steel and aluminium were a threat to the national security, giving Trump the authority to impose them without Congress.

Ross and Navarro had arranged for the main US steel executives to come to the White House the next day. When Cohn got word of the plan, he called chief of staff John Kelly around 10pm.

“I don’t know anything about a meeting,” Kelly said. “There’s no meeting.” “Oh, there’s a meeting.” “What are you talking about, Gary?” Cohn tried to kill the meeting, and for a while he thought he had succeeded. But then it was back on.

More than a dozen executives showed up the next day. At a meeting in the Cabinet Room, Trump announced that he had decided to impose a 25% tariff on foreign-made steel and 10% on aluminium. “You will have protection for the first time in a long while,” Trump told the executives. “And you’re going to regrow your industries,” he said, even though all the data Cohn had gathered showed it was not practical or even possible.

Cohn believed if they had completed the work on the intellectual property case against China, they would have had the allies on board for a blockbuster trade case. It would have been most of the world against China. Their economic rival would be isolated. Steel tariffs upended all of that. Cohn concluded that Trump just loved to pit people against each other. The president had never been in a business where he had to do long-term strategic thinking.

He went to see Trump to explain that he was resigning. “If this is the way you’re going to run the place,” Cohn said, he was going to leave. “I can deal with losing a battle in the White House as long as we follow proper protocol and procedure. But when two guys get to walk in your office at 6.30 at night and schedule a meeting that the chief of staff and no one knows about, I can’t work in that environment.”

Earlier, another exemption

At the G20 summit in Hamburg, Germany, in early July 2017 Trump wanted to talk with then Australian prime minister Malcolm Turnbull. In violation of security rules he invited Turnbull into his Sensitive Compartmented Information Facility (SCIF). Only those with the highest US security clearances for Top Secret Sensitive Compartmented Information were allowed in the SCIF. It was an absolute rule, intended to prevent someone planting listening devices. This facility, a large steel room, had to be torn down after the meeting.

The relationship between the leaders had been difficult since the first week of the administration, when the two men spoke by phone. Trump wanted to get out of what he called a “stupid” deal that is “going to kill me” between the US and Australia, made under former president Barack Obama. Under the agreement, certain refugees with questionable backgrounds waiting on an island off Australia would be allowed to enter the US. The transcript of their 28 January 2017, call had leaked. Trump had said, “It is an evil time. . . . Are they going to become the Boston bomber?”

As he went to the meeting with Trump in Germany, Turnbull was aware of the debate within the White House about possible tariffs on steel imported into the US. “If you do ever put steel tariffs on,” Turnbull said, “you’ve got to exempt Australian steel. We do this steel that’s specialty steel. We’re the only one that produces it in the world. You’ve got to let us out. You’ve got a $40 billion trade surplus with us. We’re military allies with you. We’re in every battle with you.”

“Of course,” Trump said, “we’ll let you out. That makes total sense. You guys are great. We’ve got a big surplus with you guys”—the holy grail.

Gary Cohn, who was in the meeting, was pleased. Turnbull had previously been a partner at Goldman Sachs and had worked for Cohn when he was Goldman president. Coming back from the G20 summit, Trump was editing an upcoming speech with Porter. Scribbling his thoughts in neat, clean penmanship, the president wrote, “TRADE IS BAD.” Though he never said it in a speech, he had finally found the summarizing phrase and truest expression of his protectionism, isolationism and fervent American nationalism.

Nearly eight months later, on 23 February 2018, Turnbull arrived at the White House to see the president. In the prep session in the Oval Office for the meeting, Cohn reminded Trump of his pledge. “Mr. President,” Cohn said, “the first thing he’s going to bring up is the steel tariffs. And he’s going to remind you that you let him out.” “I don’t remember,” Trump said, sitting behind the Resolute Desk. “Well, sir,” Cohn said, “you had the conversation with him . . .” “I’m going to deny it,” Trump replied. “I never had that conversation with him.”

“Okay, sir, just reminding you that it’s going to come up.” Cohn had witnessed this for over a year—denial when needed or useful or more convenient. “He’s a professional liar,” Cohn told an associate.

At lunch Turnbull carefully stepped Trump through their time at the G20 the previous summer.

Remember we were in Hamburg?

Yes, Trump said.

You took me back in your secure facility?

“Oh, yeah, I remember that,” Trump replied. “My security guys were so pissed. They couldn’t believe I did it.”

Remember what conversation we had?

Trump nodded.

We were talking about specialty steel that Australia exclusively produces.

A version of yes from Trump.

“We’ve got a $40 billion trade surplus?”

Yes, Trump knew that for sure.

And you agreed to let me out of any steel tariff?

“Oh, yeah,” Trump answered, “I guess I remember that.”

Cohn laughed. Australian steel was later exempted, as were other nations. As of June 2018, Australia retained its exemption.

source: livemint


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