It is widely expected that, as part of a phase one deal, the U.S. and China will roll back part of the tariffs levied during the year-long trade dispute.
But Peter Navarro, assistant to the president and director of the Office of Trade and Manufacturing Policy, argued forcefully against and even shook his head no at the suggestion of tariff relief in an interview with Yahoo Finance’s The Final Round on Friday, casting a shadow over the much-anticipated deal signing.
“There's no rollback at all,” Navarro said. “So we need the tariffs there, but the tariffs are really our best insurance policy as well to make sure that the Chinese are negotiating in good faith.”
Navarro’s comments echoed that of his boss. “Well, they’d like to have a rollback. I haven't agreed to anything,” President Trump told reporters earlier on Friday, adding “China would like to get somewhat of a rollback — not a complete rollback, because they know I won't do it.”
Navarro, one of the main China hawks at the White House, believes the U.S. needs to keep tariffs in place to ensure the enforcement of signed provisions and to negotiate for future ones. The phase one deal mainly covers intellectual property theft, forced technology transfer and currency manipulation. The provisions on IP theft is entirely from the failed deal in May, which the U.S. accused China of reneging on last minute, according to Navarro.
Other corners of the Trump administration are not in line with Navarro and Trump. On Thursday, Larry Kudlow told Bloomberg that “if there’s a phase one trade deal, there are going to be tariff agreements and concessions.” On Friday, White House Press Secretary Stephanie Grisham added, in a Fox News interview, that “I imagine, if we reach [a deal] then some tariffs could be lifted.”
China using ‘the Western press’
On Thursday, China publicly announced that both sides have agreed to remove the additional tariffs in phases as progress is made on the agreement. Navarro dismissed that saying the Chinese are trying to “use the Western press to kind of try to box us in, but the president's not having any of that.”
Navarro, who told Yahoo Finance in September that the U.S. and China should go back to the original comprehensive deal from May, says that phase one only covers limited issues and some of the promises China made are too broad. Other issues on the table, including state-owned enterprise subsidies and fentanyl, are not included. Of Navarro’s oft-repeated, “seven deadly sins” from China, he says four of the so-called sins are not addressed at all in phase one.
On the major sticking point of China’s forced technology transfers, Navarro noted that what “we get is a core commitment on force technology, but it's only a base obligation, so on a scale of one to 10, I'd rate that maybe a two.” He added that “so you can see that phase one is in desperate need of phases two and three, which is why we need to keep the pressure on, the tariffs on, and to keep China active at the bargaining table.”
Other provisions, such as agriculture will be included in phase one, Navarro noted. The opening of financial markets, something China has been pushing hard for years in order to improve its efficiency in the domestic market, is also a provision likely to be included in a phase one deal.
“Something that was really never part of the original negotiation, financial market opening, which will make people on Wall Street happy, but doesn't really create a lot of jobs in the heartland,” said Navarro.
Trump has also hinted at the outstanding issues during the negotiations. “We will finish out the large Phase One part of the deal, then head directly into Phase Two,” he recently tweeted.
The president has continued to argue for tariffs even as his administration has indicated they might be lowered. "Thanks to my tariffs, we're taking in billions and billions of dollars from a country that never gave us 10 cents" he said at a rally on Wednesday adding, "we can't let our country go back to the days of being ransacked and plundered by other nations."
It’s unclear if China will agree to any initial deal that doesn’t include the U.S. making significant compromises on the tariffs.
Krystal Hu covers tech and China for Yahoo Finance. Follow her on Twitter. Ben Werschkul is a producer for Yahoo Finance in Washington, DC.