The Room Where It Happened

by John Bolton;

By the time I joined the White House, trade discussions of all sorts with China had been under way for some time. Trump approached trade and trade deficits as if reading a corporate balance sheet: trade deficits meant we were losing, and trade surpluses meant we were winning. Tariffs would reduce imports and increase government revenues, which was better than the opposite. In fact, free-traders, and I consider myself one before, during, and after my time with Trump, scoffed at such arguments. Still, trade deficits often indicated other problems, such as the enormous benefits China reaped from intellectual property theft, which in turn allowed it to compete more successfully against the very firms it had stolen the intellectual property from. Compounding the problem, Beijing subsidized its businesses to lower their prices internationally. Major decreases in US manufacturing jobs resulted from lower labor costs of production in China and other developing countries. It was therefore trade deficits as symptoms of other problems, not as problems in themselves, that warranted more attention, whether Trump fully understood or not.

  In the midst of US trade delegations going to Beijing and Chinese delegations coming to Washington, Ross called me in mid-April, my second week on the job, to talk about ZTE, a Chinese telecom company. ZTE had committed massive violations of both our Iran and our North Korea sanctions, had been successfully prosecuted by Justice, and was operating under a criminal-consent decree7 monitoring and regulating its behavior. A court-appointed master overseeing the decree had just reported extensive violations, which could result in significant additional fines, as well as cutting ZTE off from the US market, which Ross was prepared to do. I didn’t consider this a trade issue but a law-enforcement matter. If ZTE had been a US company, we would have toasted them, and I saw no reason to hold back because ZTE was Chinese. Nonetheless, the State Department worried about offending China, so Ross wanted to know how to proceed the next day with a planned Commerce Department announcement. I told him to go ahead, which he did.8

  Within a few weeks, however, Trump was unhappy with Ross’s decision and wanted to modify the hefty penalties he had proposed, with Mnuchin quickly agreeing. I was appalled, because by rescinding what Ross had already told China, Trump was undercutting him (which, as I learned shortly, was standard operating procedure for Trump) and forgiving ZTE’s unacceptable criminal behavior. Even so, Trump decided to call Xi Jinping, just hours before announcing that the US was withdrawing from the Iran nuclear deal. Trump began by complaining about China’s trade practices, which he believed were so unfair, and said China needed to buy more US agricultural products. Xi actually raised ZTE first, and Trump called our actions very strong, even harsh. He said he had told Ross to work something out for China. Xi replied that if that were done, he would owe Trump a favor and Trump immediately responded he was doing this because of Xi. I was stunned by the unreciprocated nature of the concession, and because, as Ross told me later, ZTE had almost been destroyed by the penalties imposed. Reversing the decision would be inexplicable. This was policy by personal whim and impulse.

  Whim and impulse continued on Sunday, May 13, when Trump tweeted:

  President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!

  When had we started to worry about jobs in China?

  On Monday, I heard Navarro was trying to get a miscellaneous group of people into the Oval to tell Trump what a bad idea backtracking on ZTE was. Substantively, I obviously agreed, but this was a completely chaotic way to make policy. Unfortunately, this is exactly how trade matters were handled within the Administration from day one. I tried to restore order by organizing a Principals Committee. Unfortunately, the various economic departments and agencies were riled at being put into the process run by the National Security Council, indicating it had happened only rarely before. They would all rather take their chances with the existing policy-making roulette rather than follow process discipline. The only conclusion to emerge clearly from this moment was that international economic policy remained utterly unstructured, and this was unlikely to change without superhuman effort, not to mention a President who agreed such change would be beneficial.

  In fact, Trump’s favorite way to proceed was to get small armies of people together, either in the Oval or the Roosevelt Room, to argue out all these complex, controversial issues. Over and over again, the same issues. Without resolution, or even worse, one outcome one day and a contrary outcome a few days later. The whole thing made my head hurt. Even where there were occasional areas of agreement, it did not afford a basis from which to develop broader policy. For example, Hassett’s economists had done some careful modeling of the impact of China tariffs if an open trade conflict broke out. His data showed that tariffs on approximately $50 billion of Chinese exports to the US that Lighthizer had been crafting would actually advantage the US.9 Trump heard that and said, “This is why they will negotiate.” Whether China was a currency manipulator was also a favorite subject of discussion, with Navarro insisting that Beijing was, and Mnuchin insisting it was not. I also tried to create process discipline in this area, together with the National Economic Council, but that too failed. As time went on, Trump didn’t hide his view (strongly shared by Chuck Schumer, just for context) that China was manipulating its currency for trade advantage, telling Mnuchin in mid-November, “I was with you two months ago. I was okay with your analysis, but I’m not with you now.” On and on it went. And then it went on some more.

  Part of the contentiousness arose because in the Administration’s earlier days, Mnuchin had embedded himself into trade negotiations, although Treasury’s role in prior presidencies was always far smaller than the role of the United States Trade Representative or the Commerce Secretary. Not only was his outsized role institutionally unusual, Mnuchin’s pro-China, zeal-for-the-deal approach was substantively dangerous. From time to time, even Trump saw this. At one Roosevelt Room session, on May 22, Trump all but yelled at Mnuchin, “Don’t be a trade negotiator. Go after Bitcoin [for fraud].” Mnuchin, also all but yelling, said, “If you don’t want me on trade, fine, your economic team will execute whatever you want.” That didn’t necessarily mean the United States Trade Representative would resume its traditional role as primary negotiator, because Trump also lashed out at Lighthizer: “You haven’t made one deal yet!”

  What did process matter anyway when Trump tweeted on his own, as he did on May 14:

  ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.

  What was that all about? Worse was the explicit linkage of a law-enforcement matter to a trade deal, not to mention with Trump’s “personal relationship” with Xi. For Xi, personal relationships of any sort did not get in the way of his advancing Chinese interests, just as Putin’s personal relationships didn’t hamper his advancing Russian interests. I don’t think Trump ever got this point. Here, it was all about Trump and Xi. In countless other episodes, he had trouble divorcing the personal from the official.

  On May 16, Trump struck again: “The Washington Post and CNN have typically written false stories about our trade negotiations with China. Nothing has happened with ZTE except as it pertains to the larger trade deal. Our country has been losing hundreds of billions of dollars a year with China…” This continued linkage of ZTE to overall trade issues was quite disturbing not only to Commerce but also to Justice, which was still monitoring ZTE’s performance under the consent decree. Of course, by then Trump was barely talking to Attorney General Sessions, let alone considering his advice. Instead, Trump was writing Xi personal handwritten notes, which had the White House Counsel’s office climbing the walls. What Trump wanted from ZTE now was a billion-dollar fine. That sounds like a lot, but it was chump change compared to ZTE’s shutting down altogether, which is w
hat Commerce’s actions were doing to it. It was also slightly smaller than the fine ZTE had paid initially when the consent decree was first imposed.10 The settlement Ross negotiated under Oval Office duress was finally announced in June. ZTE would theoretically have an independent board of directors and a continuing outside monitor.11 Most business observers thought Trump had given ZTE not just a reprieve but a new lease on life. And what did we receive in exchange? Good question.

  * * *

  On the other hand, Trump came increasingly to view China as trying to influence the 2018 congressional elections against Republicans, and more important (to him), as working for his defeat in 2020. There was plenty of logic supporting both propositions, with good reason if you looked at the significant increase in US military spending under Trump, and the trade war. In our public statements on foreign-government efforts to meddle in US elections, we correctly referred to both China and Russia. China was also trying to leverage Trump’s primal urge to make deals to its economic advantage, hoping to push us into “trade agreements” that didn’t resolve the structural issues that were the real cause of the economic and political disputes between us. Beijing had to know how deeply divided Trump’s China advisors were, because they could read about it routinely in the media.

  We looked at China’s election-related efforts as part of one of the broadest influence operations ever undertaken, far broader than what Democrats and the media obsessed over in 2016. Viewed without partisan blinders, China could bring considerably greater resources to bear on this effort than Russia. This was serious, and required a serious response. One answer was a judicious declassification review, done with care and prudence, especially not to jeopardize intelligence sources and methods, but enabling us to lay before the American people what we were up against. Trump referred publicly to China’s efforts when he addressed the UN Security Council in September 2018, but it received little press attention.12

  Pence took the opportunity of a speech at the Hudson Institute to describe the nature of China’s influence operation, using both the newly declassified information and a wide range of other data already in the public domain.13 The drafting involved difficult choices, because it was obvious Trump did not want the Vice President saying anything that could damage his prized personal relationship with Xi. Otherwise, he was prepared to take Beijing on, because he saw its efforts aimed at him personally. In private, Trump said both China and Russia were threats, which I wish the press could have heard. So interested was he in the final draft that the day before its delivery, Pence, Ayers, and I sat with Trump in his small dining room, going over it line by line. In short, Trump knew and personally approved everything that Pence said. The next day, we were all delighted with the press coverage. Pence said to Ayers and me that it was “the boldest China speech ever,” which I think is true. As we discussed press coverage with Trump, he said, revealingly, “Other Presidents just didn’t think it was appropriate to talk about money. That’s all I know how to talk about.”

  With November’s elections looming, there was little progress on the trade front, and attention inevitably turned to the Buenos Aires G20 meeting at the end of the month, when Xi and Trump could meet personally. Trump saw this as the meeting of his dreams, with the two big guys getting together, leaving the Europeans aside, cutting the big deal. What could go wrong? Plenty, in Lighthizer’s view. He was very worried about how much Trump would give away once untethered. The day after the election, I met with Chinese State Councilor Yang Jiechi in Washington for a series of meetings ahead of the G20. We gathered in the Ward Room, which was crowded with participants, including Kushner, who had told me on Election Day, “The President has asked me to get more involved in the China trade issue,” I am sure thereby delighting the dozens of other senior people jostling to be heard on China trade.

  As was customary with senior Chinese officials in these kinds of meetings, Yang read carefully from a prepared text, saying the G20 meeting was the top priority in the relationship. We discussed how to structure the meeting, and my contribution to world peace was suggesting that Xi and Trump, each accompanied by seven aides, have dinner on December 1, which is what ultimately happened, after a lot of to-ing and fro-ing. Trade was the top priority. Yang assured me that China wanted strategic trust, and had no intention to challenge or displace the United States. They did not want conflict or confrontation, but win/win solutions. This went on and on, but the only problem we solved was the dinner arrangement. That was hard enough, given how many others on the US side wanted to weigh in on that mega-question.

  Saturday, December 1, in Buenos Aires came quickly, and dinner with Xi was the last event before Trump flew home. In the late afternoon, we met Trump for a final briefing. Mnuchin had been beavering away all day with Liu He, China’s economic-policy czar and top trade negotiator, widely viewed as number three in Xi’s regime. Liu laid out what he expected Xi would say at dinner, including how Xi thought a trade deal should be structured. Mnuchin said all but explicitly that Trump should just accept it. Tough bargainer, Steve. It was unclear how much Lighthizer had been involved, but Navarro hadn’t been involved at all, and the fireworks began. (Russia and North Korea were also on the dinner agenda; we never got to Russia and spent less than two minutes on Korea. In many ways, I was relieved.)

  Lighthizer said he thought a “free-trade agreement” with China would be almost suicidal, but Mnuchin was fired up by his success in getting China to agree to purchase more soybeans, other agricultural products, and minerals, just as if we were a Third World commodity supplier to the Middle Kingdom.

  I said I didn’t think any of the numbers being bandied about were the real issues. This wasn’t a trade dispute but a conflict of systems. The “structural issues” we raised with China weren’t trade tactics but a fundamentally different approach to organizing economic life. Negotiations should begin on these issues, so we could see whether there was any real chance China was serious about changing its ways (and I certainly didn’t believe it was). Kudlow agreed, taking a position more distant from Mnuchin than ever before, and Mnuchin didn’t react well. During the ensuing debate, I suggested we bar all Chinese goods and services from America if they were based in whole or in part on stolen intellectual property. “I like that idea,” said Trump, but of course Mnuchin didn’t. I said we would need additional legislative authority, but it was a battle worth fighting. Trump said again (several times in fact) that he liked the idea, so I thought at least some progress had been made. The briefing ended minutes later, at four forty-five.

  Dinner started at five forty-five, after the mandatory session with the press mob for pictures, and lasted until eight o’clock. Xi began by telling Trump how wonderful he was, laying it on thick. Xi read steadily through note cards, doubtless all of it hashed out arduously in advance planning for this summit. For us, the President ad-libbed, with no one on the US side knowing what he would say from one minute to the next. One highlight came when Xi said he wanted to work with Trump for six more years, and Trump replied that people were saying that the two-term constitutional limit on Presidents should be repealed for him. I was aware of no such chatter. Knowing Xi was effectively “President for life” in China, Trump was trying to compete with him. Later in the dinner, Xi said the US had too many elections, because he didn’t want to switch away from Trump, who nodded approvingly. (Indeed, in a subsequent telephone conversation on December 29, Xi said expressly that China hoped Trump would have another term by amending the Constitution so he could stay longer.) Xi denied the idea of the “100-year marathon”14 to gain world dominance, or replace the United States, saying that was not China’s natural strategy. They respected our sovereignty and our interests in Asia, and merely wanted the 1.4 billion Chinese to enjoy a better life. How nice.

  Xi finally shifted to substance, saying that since their November 1 phone call, their staffs had worked hard and reached consensus on the key economic issues. He then described China’s positions, essentially what Mnuchin h
ad earlier urged we agree to: the US would roll back Trump’s existing tariffs; there would be no competitive currency manipulation; and we would agree not to engage in cyber thievery (how thoughtful). There were no winners in a trade war, said Xi, so we should eliminate the current tariffs, or at least agree there would be no new tariffs. “People expect this,” said Xi, and I feared at that moment that Trump would simply say yes to everything Xi had laid out. He came close, unilaterally offering that US tariffs would remain at 10 percent rather than rise to 25 percent as he had threatened. In exchange, Trump asked merely for some increases in farm-product purchases (to help with the crucial farm-state vote). If that could be agreed, all the tariffs would be reduced. Intellectual property was left to be worked out at some unspecified point. There would be a ninety-day period of negotiations to get everything done. It was breathtaking. Then he asked Lighthizer if he had left anything out, and Lighthizer did what he could to get the conversation back onto the plane of reality, focusing on the structural issues and ripping apart the Chinese proposal so beloved by Mnuchin.

  Trump also asked Xi to reduce China’s exports of fentanyl, a deadly opioid causing havoc across America and a politically explosive issue, which Xi agreed to do (but then later did essentially nothing). Trump also asked for the release of Victor and Cynthia Liu, whom China was holding hostage because of allegations against their father, Liu Changming, who was in the US. Xi said, as if this were the answer, that the Lius were dual US-Chinese citizens. Trump shrugged his shoulders disdainfully and dropped the issue. So much for protecting US citizens. The Chinese probably hoped the dinner would go on all night.

  Trump closed by saying Lighthizer would be in charge of the deal-making, and Kushner would also be involved, at which point all the Chinese perked up and smiled. You bet. Trump pointed out Lighthizer and Navarro (whose very presence must have irritated the Chinese) as the hawks, Mnuchin and Kudlow as the doves, and said about Pompeo and me, “They don’t care about the money.” Hard to say what the Chinese made of all that, but Xi certainly didn’t offer up a reciprocal scorecard for his side of the table. The diminution of Mnuchin’s role was the day’s best news. At the end, after discussing press statements, we all headed for our respective airports. In the telling later, the dinner got longer and longer, three hours, three and a half, and finally “over four hours,” as Trump regaled listeners with the triumphs he had enjoyed.