For weeks, the United States and China had appeared close to a deal that would have forestalled tariffs. Top advisers like Steven Mnuchin, the Treasury secretary, and Wilbur Ross, the commerce secretary, had advocated a deal that could avoid the devastating effects of a trade war, and spent hours in negotiations with Chinese officials.
But after the Chinese refused to commit to a target for reducing their trade surplus with the United States or limit industrial subsidies, Mr. Trump rejected those proposals. And his resolve only hardened after lawmakers, including Democrats, criticized him as being weak on China when he agreed to help ease penalties on ZTE, a Chinese telecommunications company accused of violating American sanctions.
That decision has triggered a huge fight between the White House and Congress. On Monday, the Senate passed legislation that would reinstate penalties on ZTE and rescind a Commerce Department deal that allowed the company to stay in business in exchange for paying a large fine and agreeing to a series of management and compliance changes. The White House has vowed to remove that provision before the bill becomes final, and Mr. Trump is expected to meet with lawmakers on Wednesday to discuss the fate of ZTE.
The president’s approach has irritated some of Mr. Trump’s own advisers, including Mr. Mnuchin, who has been frustrated by the process of the China talks, according to an official familiar with his thinking. Mr. Mnuchin has tried to explain in recent meetings how China is likely to respond to America’s threats and the impact that retaliation could have on financial markets and the economy.
He has also been trying to persuade Mr. Trump not to proceed with harsh restrictions on Chinese investment that would limit China’s ability to do business in the United States. The Treasury Department is expected to release a proposal this month. Mr. Mnuchin, who is leading the effort, has been trying to convince Mr. Trump that the restrictions are unnecessary, given pending legislation that would expand national security reviews performed by the Committee on Foreign Investment in the United States.
In late May, Mr. Mnuchin helped orchestrate a meeting between the president, top White House advisers and Republican lawmakers, where the Treasury secretary asked lawmakers to help make the case that legislation would be a more targeted way to police Chinese investment, three people with knowledge of the meeting said. But Mr. Navarro and Robert E. Lighthizer, the United States trade representative, who were also in the meeting, objected to that approach. The president ultimately overruled Mr. Mnuchin, saying that he supported the congressional legislation but that it alone wasn’t enough.