Trump's China truce sets up a make-or-break stretch for his promise to overhaul America's trade policy

Key Points
  • President Donald Trump enters high-stakes trade talks with China as he tries to push Congress to approve a revision of the North American Free Trade Agreement. 
  • His administration will have to handle delicate negotiations on two fronts as Trump tries to declare victory on overhauling trade deals, one of his signature campaign promises. 
  • The White House will try to resolve thorny trade issues with Beijing and convince a skeptical Congress to back the new North American deal. 
President Donald Trump visits the Forbidden City with China's President Xi Jinping in Beijing on November 8, 2017.
Jonathan Ernst | Reuters

President Donald Trump's commitment to work toward a sweeping trade deal with China in the next three months sets up a pivotal stretch for one of his top campaign goals: reshaping U.S. trade relationships around the globe.

The Trump administration and the Chinese government agreed to a temporary trade truce Saturday night, pledging to delay threatened tariffs for 90 days while they work toward a concrete trade deal. (Top Trump economic advisor Larry Kudlow told reporters Monday that the 90-day timetable will start Jan. 1, but the White House later issued a correction saying the timetable starts December 1.) Washington will push Beijing to address thorny issues such as forced technology transfers and alleged intellectual property theft — which the two sides have failed to resolve despite months of attempts.

The commitment to talk throws Trump into the most high-stakes period yet in his yearslong effort to crack down on what he calls unfair trade practices. At the same time as the China talks play out, the president will try to push his revision of the North American Free Trade Agreement through a skeptical and divided Congress.

Trump is eager to declare victory on trade after arguing as a candidate and in the White House that China's practices and the pact with Canada and Mexico punished American workers. But to do so, the volatile president will have to navigate delicate talks on two fronts. Failure in either effort could upend U.S. relationships with its three largest trading partners and shake the American and global economies.

Mnuchin says Trump and Xi had a breakthrough moment

Trump showed optimism Monday morning about breaking the impasse with China. In a tweet, he called his meeting with Chinese President Xi Jinping at the G-20 summit in Argentina "extraordinary." He promised "very good things will happen."

"We are dealing from great strength, but China likewise has much to gain if and when a deal is completed," he wrote.

Trump tweet

Trump moved to declare victory after Washington and Beijing paused a trade war that has led to tariffs on more than $350 billion in Chinese and U.S. goods combined. In separate tweets Monday, he said China has "agreed to reduce and remove" a 40 percent tariff on U.S. car imports and "immediately" purchase more U.S. agricultural products.

Treasury Secretary Steven Mnuchin — part of the delegation that met with Chinese officials this weekend — echoed the president's optimism on Monday.

"This is the first time that we have a commitment from them that this will be a real agreement," he told CNBC's "Squawk Box." "I'm very hopeful we can turn this into a real agreement."

Still, challenges await the Trump administration in all of its trade talks. Competing interests will potentially emerge on the China negotiating team. Mnuchin said Trump himself will lead the talks, but they will include U.S. Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross and trade advisor Peter Navarro.

Mnuchin's description contradicts an earlier statement from Navarro, who said Lighthizer would head the negotiations. Navarro, who among Trump's advisors has called for the most forceful approach to China, called Lighthizer "the toughest negotiator we've ever had at the USTR." Lighthizer is also known to take a harsher line on China.

After Mnuchin's and Navarro's remarks, The Wall Street Journal reported, citing sources, that Trump told Xi that Lighthizer would run the negotiations between the two countries. Monday afternoon, Kudlow confirmed that Lighthizer would be leading the talks, after earlier playing up the notion that it would be more of a team effort.

US to hold off on raising China tariffs to 25 percent

While markets rose after the news of the truce, and major Wall Street economists called the Argentina meeting a positive development, many doubt that China will make the broad concessions the U.S. seeks. Mnuchin suggested that some of the longstanding disputes with China could get resolved "in the short term," but others will take longer to settle.

The White House has threatened to raise a 10 percent tariff on $200 billion in Chinese goods to 25 percent, as originally planned, if the two sides fail to reach a deal within 90 days. The Treasury secretary told CNBC that the U.S. "absolutely" needs to see "something concrete over these 90 days."

The China talks alone appear to be a big lift for Trump's team. But the White House will attempt to ram the United States-Mexico-Canada Agreement — which tweaks NAFTA, which went into effect nearly 25 years ago — through Congress as Democrats prepare to take control of the House next month.

Nancy Pelosi, the Democratic front-runner to become the next House speaker, called the trade deal a "work in progress" last week as she pushed for more labor and environmental protections. Even Republicans in the GOP-controlled Senate, such as Rob Portman of Ohio and Marco Rubio of Florida, have pushed for changes to the agreement.

Trump's threat Saturday to scrap NAFTA was an apparent move to pressure lawmakers to support his new deal. Indeed, Kudlow told reporters Monday: "President Trump's intent here is to light a fire under Congress."

The threat only complicates the tricky process. Sen. Sherrod Brown, an Ohio Democrat who often aligns with Trump on trade, called the threat "not particularly helpful," according to The Washington Post.

Trump administration officials have shrugged off the prospect of the USMCA deal failing in Congress. As he signed the deal with Canada and Mexico's leaders on Friday, Trump said he does not "expect to have very much of a problem" getting the legislature to approve it.

Mnuchin also showed optimism Friday about the prospect of Congress signing off on the trade agreement.

Trade is not the only core issue on which Trump will face difficult talks in the coming weeks. He is also pushing for Congress to approve $5 billion to build his proposed border wall, which Democrats have pledged not to do. The physical barrier was one of his most repeated campaign promises.

Congress faces a Friday deadline to pass a spending bill or see parts of the government shut down. Lawmakers appear set to pass only a short-term spending bill this week as the death of former President George H.W. Bush has turned Washington's focus away from the talks. That will only delay the possible showdown between Trump and Democrats.

Trump on Monday again threatened to shut down the "entire" southern U.S. border "if necessary," another move that would disrupt trade with a major partner.

Trump tweet

CNBC's Christina Wilkie contributed to this report.

Clarification: This story was updated to reflect when the 90-day timetable would begin.

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