The Trump administration is considering eliminating tariffs on billions of dollars of Chinese imports to spur progress toward a trade deal, less than two weeks before a high-level delegation from Beijing is scheduled to arrive in Washington for talks.
Treasury Secretary Steven Mnuchin in recent weeks has proposed a tariff reduction as an incentive for China to sweeten its offer to the United States, according to two people familiar with the discussions who were not authorized to speak publicly.
Administration hard-liners, including US Trade Representative Robert Lighthizer, are opposed to eliminating the tariffs before China has taken irreversible steps to meet US demands.
President Donald Trump last year imposed tariffs on Chinese industrial and consumer goods as leverage in talks aimed at shrinking the US trade deficit and forcing China to abandon discriminatory trading practices.
If negotiations do not succeed by March 1, tariffs on US$200 billion ($295.5b) in Chinese products are scheduled to rise to 25 per cent from 10 per cent. Officials now are debating whether to instead eliminate the levies on some or all of the affected Chinese goods.
After years of tough talk toward China, the president in recent months has warmed to the idea of striking a deal with Beijing. The idea of an early tariff cut has not yet reached his desk, with the administration scrambling to manage a government shutdown that was in its 27th day Thursday.
But weakness on Wall Street - where the Dow Jones industrial average has lost more than 9 per cent since its October 3 peak - and mounting unease among Trump's political supporters hurt by the tariff war are triggering the president's dealmaking instincts, the people familiar with the discussions said.
"He's driving toward a deal," said one business executive who asked not to be named, to avoid angering the administration. "He wants a deal and may be willing to settle for not very much to get it."
Trump agreed with Chinese President Xi Jinping over dinner in Buenos Aires, Argentina, on December 1 to delay a scheduled tariff increase and launch renewed talks aimed at a comprehensive trade deal.
The administration has insisted for months that it would not remove tariffs unless China agreed to significantly higher purchases from US businesses and sweeping changes in its state-dominated economic system.
During talks in Beijing this month, Chinese officials offered to increase annual purchases from the United States by about 30 per cent, or about US$40b, the business executive said. That figure is consistent with internal administration estimates of US capacity to fill new Chinese orders, the executive said.
Even if they materialised, those new orders would leave most of the annual US$375b US trade deficit with China untouched - and the president with a key campaign promise unfulfilled.
Chinese officials also expressed doubt that US businesses could meet a sudden spike in orders, especially for liquefied natural gas and crude oil, according to two business executives familiar with the talks.
There has been little progress on US demands for "structural" changes in China's economy, including a reduction in government subsidies, limits on foreign companies' market access and compulsory technology licensing requirements.
The administration has long been divided over the best approach to China, with Mnuchin preoccupied by the impact on markets and the economy of a prolonged trade conflict and Lighthizer and White House adviser Peter Navarro determined to force what they see as long-overdue changes in relations with Beijing.
"Mnuchin's position is not at all new, nor is his utter lack of authority on the issue," said Derek Scissors, a China expert at the American Enterprise Institute, alluding to Lighthizer's responsibility for import taxes.
Chinese Vice Premier Liu He is scheduled to lead the Chinese side in the next round of talks, starting January 30. Lighthizer will head the US delegation.
"Neither Secretary Mnuchin nor Ambassador Lighthizer have made any recommendations to anyone with respect to tariffs or other parts of the negotiation with China," said a Treasury Department spokesperson who works with the negotiators, speaking on the condition of anonymity under guidelines set by the administration.
"This an ongoing process with the Chinese that is nowhere near completion."
The president has oscillated between his team's hawks and doves and could do so again, according to a former Treasury Department official.
The president's use of tariffs has been controversial even among those who agree that China cheats on its trading obligations. The import levies have raised costs for businesses that buy parts from Chinese factories and cast a shadow of uncertainty over future investment plans.
"We disagreed with the use of tariffs going into this, but there's no denying that China is willing to talk because they are under pressure," said Erin Ennis, senior vice president of the US-China Business Council.