China Eyes Trump's 2020 Strategy for Clues on Trade War Deal

-A +A

(July 10): As the U.S. and China restart trade talks, few in Beijing see a clear pathway to a lasting deal.

Pessimism dominated in conversations last week with about a dozen bureaucrats, government advisers and researchers in China’s capital following the latest truce between Presidents Donald Trump and Xi Jinping. Most saw Trump’s election strategy as being the paramount factor for whether a deal was possible in the short term.

“Trump’s biggest aim is reelection in 2020,” said Wei Jianguo, former vice minister of commerce and now a vice chairman of the China Center for International Economic Exchanges. “All of his actions are aimed toward it.”

More than a year after Trump first levied punitive tariffs on Beijing, the conflict between the world’s two-largest economies has only widened as both Trump and Xi face political pressure to resist key demands from the other side. Slowing growth and threats against major companies from both countries have further raised the stakes heading into next year.

Many Chinese officials were reluctant to discuss the 2020 election out of fears they could be accused of Russian-style meddling. Yet two schools of thought emerged on Trump’s political calculus.
Two Views

One was that he must deliver a deal on China heading into 2020 to please his base, and would therefore eventually relent to Beijing’s demands. The other was that he would drag things out through the campaign, particularly if the economy and stock market held up, since he faced a field of Democrats who basically agree with on getting tough with China.

Despite all Trump’s provocations over the past few years, some in China actually think he’ll give them a better deal. Trump is a pragmatist, this argument goes, and after he wins re-election he would rather make friends with China than keep battling.

This view reflects deep-seated concerns among some in the Chinese establishment about the Democrats -- and particularly former presidential candidate Hillary Clinton, who served as secretary of state for four years during the Obama administration.

“The Chinese people and think tanks have bad impression of Democrats and Hillary Clinton,” said Wei, the former vice commerce minister. “The biggest problem with Trump is that he is unpredictable and doesn’t always do what he said he will do, but he gives the impression of being someone you can deal with.”
Too Unpredictable

Still, another prevalent concern is whether Trump is too unpredictable to trust. While the Democrats traditionally care focus more on human rights and collaborate with allies to pressure Beijing, overall they treat China with respect and work through established institutions.

“I don’t think Xi would like to see Trump re-elected,” said Shi Yinhong, a foreign affairs adviser to the State Council and director of Renmin University’s Center on American Studies in Beijing. “Any Democrat would be less brutal.”

No matter what happens in 2020, though, most in Beijing agreed that China needs to be prepared for a protracted confrontation. There are many reasons to think that’s wise.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke by phone Tuesday with Chinese counterparts Vice Premier Liu He and Commerce Minister Zhong Shan, the first high-level contact since Xi and Trump shook hands on a truce. But before they move forward, they’ll first need to figure out where to pick up the pieces.

Both sides differ publicly on how the talks broke down in early May, and Trump’s moves since then to both raise tariffs and blacklist telecom equipment giant Huawei Technologies Co. have narrowed the space for Xi to maneuver.
Unequal Treaties

The biggest sticking point from China’s perspective is a U.S. demand to keep the punitive tariffs in place until Beijing actually implements reforms to state-owned enterprises and intellectual property. It’s politically unfeasible for Xi to accept any deal that doesn’t remove the tariffs: Nationalists in the Communist Party are pressuring him to avoid signing an “unequal treaty” reminiscent of those China signed with colonial powers.

This debate has picked up in China over the past month, with the party’s flagship People’s Daily newspaper warning obliquely in editorials that unidentified “capitulators” wanted China “to be a vassal, controlled and working for the United States.” The episode has undermined China’s trade negotiators, according to Wang Huiyao, an adviser to China’s cabinet and founder of Center for China and Globalization.

Moreover, Chinese negotiators faced resistance from other departments when the draft text was circulated within the government, Wang said. While neither side has specifically mentioned what caused the talks to break down, American officials have hinted that China reneged on changing laws regarding forced technology transfer and cybersecurity.
‘Politically Incorrect’

“Trump gave the hardliners plenty of space,” Wang said, adding that they consisted mainly of officials in the military and security. “It’s become politically incorrect to call for a deal.”

Trump has his own political concerns to worry about. In announcing the truce, he spoke at length about how China would be buying more farm goods from “great patriots” in the Midwest -- even though no details of any purchases have been announced by either side. Officials in Beijing said China pledged to do no such thing before a final deal is struck.

But many in Beijing also saw Trump’s eagerness to restart trade talks as a sign the U.S. wouldn’t push for a more extreme Cold War-style conflict or economic decoupling. The Huawei blacklist was starting to hurt American firms as well, and it didn’t make much electoral sense to alienate big business ahead of an election.

“Trump almost tore down the house, but he didn’t burn it,” said Shou Huisheng, an associate professor of countries and regional studies at Beijing Language and Culture University. “The current competition is about who is strong, who will dominate the world in the future. It’s a chess war.” - Bloomberg