Removing U.S. tariffs on Chinese goods in stages might be a good strategy to hold Beijing to its promises made during trade negotiations, but it will make it harder for businesses to operate, a former U.S. trade negotiator said Thursday.
There's a distinction between what might be attractive as a trade negotiating strategy and what might be attractive from a business perspective, Stephen Olson, a research fellow at the pro-trade group Hinrich Foundation, told CNBC's "Street Signs" on Thursday.
While removing the tariffs in stages may be effective for the U.S. to keep its leverage in the trade talks, such a move "makes it very, very difficult to do planning and it only extends the period of uncertainty" for businesses, he said.
As part of the final trade deal, U.S. officials want to keep at least some of the tariffs in place as a way to ensure Beijing lives up to its commitments. China, for its part, wants the tariffs to be completely removed.
Speaking at a rally in Florida Wednesday, U.S. President Donald Trump claimed that China "broke the deal" in the ongoing trade negotiations between Beijing and Washington. Over the weekend, the president threatened on Twitter to significantly raise American levies on Chinese goods — with a first increase this coming Friday, and another "shortly."
China has threatened to retaliate if the U.S. hikes tariffs on $200 billion worth of goods to 25% from 10%.
While some may view Trump's threats as a likely negotiating tactic, Olson disagreed.
"Certainly, President Trump would welcome a trade agreement that he could position as a victory, as a win," he said. But if the best deal that is available leaves the president vulnerable to charges from his political opponents that he has gone soft on China, then Trump could back track from reaching an agreement, Olson explained.
"The overwhelming political imperative for him would be to walk away from a deal, hike the tariffs and position himself as the only U.S. president who is tough enough to stand up to China," he said.
Ongoing negotiations hinge on several contentious areas where China is expected to commit to change laws to resolve core complaints from the U.S. Those include theft of American intellectual property and trade secrets, forced technology transfers, competition policy, access to financial services and currency manipulation.
Reuters, citing sources, reported that China backtracked on nearly all aspects of the U.S. trade deal despite months of negotiations between the world's two largest economies.
Olson added that the outcome of the ongoing talks will depend on how much progress China can make on some of those technology and industry policy issues.
"China recognizes that it needs to make some concessions and is willing to make concessions. However, it will not dismantle its industrial policies," he said. "And it will not do anything that would substantially undermine its ability to achieve its long-term economic objectives."
"So, the negotiation is going to turn on — is the level of concession that China is willing to make on technology transfer, subsidies and industrial policies etc. Will that be sufficient from the United States' point of view?" Olson added.
Chinese Vice Premier Liu He is set to lead a Chinese delegation holding trade talks this week in Washington with Trump's negotiators.
— Reuters and CNBC's Everett Rosenfeld contributed to this report.
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