U.S., China to launch trade talks; China hawk Navarro's role reduced: officials

FILE PHOTO: U.S. President Donald Trump waves to the news media after returning on Marine One after visiting first lady Melania Trump at Walter Reed National Military Medical Center from the South Lawn of the White House in Washington, U.S., May 15, 2018. REUTERS/Leah Millis

By David Lawder and Steve Holland

WASHINGTON (Reuters) - The United States and China launch trade talks on Thursday in a bid to avert a damaging tariff war, with the White House's harshest China critic relegated to a supporting role, senior Trump administration officials said on Wednesday.

Peter Navarro, the White House trade and manufacturing adviser, will not be a principal player on the U.S. side, two officials said. Instead, U.S. Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer will lead the American delegation in talks with Chinese Vice Premier Liu He, the top economic adviser to President Xi Jinping.

Navarro, author of the book "Death by China," has been the loudest "nationalist" voice on trade policy in the administration and a major advocate for punitive tariffs on Chinese goods to try to force Beijing to change its trade practices.

He attended an initial round of talks two weeks ago in Beijing that amounted to presentations of lengthy trade demands by each side. Navarro's shift away from a lead role in the talks comes amid a growing rift over trade policy with Mnuchin, who has favored more achievable deals to open China's economy to U.S. firms and ease tariff threats.

Navarro and Mnuchin had an angry exchange on the Beijing trip and ties were so strained some participants openly wondered how they would get along on the same plane on the long U.S.-China flights, a person familiar with the episode said.

The Washington talks will start as USTR finishes up public hearings on the first batch of U.S. tariffs on $50 billion worth of Chinese goods proposed as punishment for alleged violations of U.S. intellectual rights.

The tariffs, which target Chinese electrical and machinery part, autos and flat-screen television sets, could take effect in early June, and may be followed by an additional round targeting $100 billion worth of Chinese goods yet to be identified.

China has promised to retaliate in equal measure, targeting U.S. soybeans, aircraft, autos and other goods for additional tariffs, causing U.S. farm commodity prices to fall.

LIU PLEDGES HARD WORK

Liu, who is China's top economic official, told U.S. lawmakers on Wednesday that he would work hard to address the U.S.-China trade imbalance and other problems with the trading relationship.

Members of the trade- and tax-focused U.S. House of Representatives' Ways and Means Committee said they told Liu that he needed to address U.S. concerns about intellectual property theft, forced technology transfers, and barriers to investment in China and U.S. agricultural exports.

Representative Kevin Brady, the committee's Republican chairman, said he urged Liu to keep working with the administration toward a solution.

"He recognizes there are problems in this trade relationship," Brady said of Liu after the meeting. "And his hope for this trip was to begin to address the trade imbalance, increasing demand of Chinese consumers for U.S. products, as well as to begin to take steps on the structural reforms."

Liu left the meeting with several other Chinese officials without speaking to reporters.

Senator Orrin Hatch, Republican chairman of the Senate Finance Committee, said after a meeting with Liu that he doubted the Chinese would agree to steps that would warrant backing off the tariff threat.

Asked if he thought Trump would proceed with the tariffs, Hatch said: "I think we have to. We can't let them do some of these things that really fly in the face of reasonable international law without some sort of response by us."

NO DISCUSSIONS ON ZTE

The lawmakers said the meeting did not address Trump's pledge on Sunday to help Chinese telecommunications equipment maker ZTE Corp <000063.SZ> get back in business after a Commerce Department ban cut off its supply of U.S. components.

Trump said in tweets on Wednesday that "nothing has happened" with China's ZTE Corp and that Beijing has "much to give" Washington on trade, denying suggestions that his administration was "folding" in negotiations with Beijing.

Trump on Monday had defended his decision to revisit penalties on ZTE for flouting U.S. sanctions on trade with Iran, in part by saying it was reflective of the larger trade deal the United States is negotiating with China.

"Nothing has happened with ZTE except as it pertains to the larger trade deal," Trump wrote on Twitter.

"We have not seen China’s demands yet, which should be few in that previous U.S. Administrations have done so poorly in negotiating. The U.S. has very little to give, because it has given so much over the years. China has much to give!"

(Reporting by David Lawder and Steve Holland; Additional reporting by Doina Chiacu; Editing by Jonathan Oatis and Peter Cooney)

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