A new trade deal between Trump and Xi?

By Hans Izaak Kriek*

President Donald Trump said he’s personally holding up a trade deal with China and that he won’t complete the agreement unless Beijing returns to terms negotiated earlier in the year. “It’s me right now that’s holding up the deal,” Trump said at the White House before he left on a campaign trip. “And we’re going to either do a great deal with China or we’re not going to do a deal at all.”

Last month, the U.S. accused China of reneging on provisions of a tentative trade deal, bringing talks to a halt. “We had a deal with China and unless they go back to that deal I have no interest,” Trump said.

His comments came a day after he threatened to raise tariffs on China if President Xi Jinping doesn’t meet with him at the upcoming Group of 20 summit in Japan. Trump told reporters that he could impose tariffs of 25% or ‘much higher than 25%’ on $300 billion in Chinese goods.

On Tuesday in Beijing, a Foreign Ministry official demurred. “We have noted that the U.S. publicly stated many times that it looks forward to arranging a meeting between the Chinese and U.S. presidents on the sidelines of the G-20 summit. If we have this information we will release it in due time,” spokesman Geng Shuang said.

The G-20 in late June is one of the last chances for Trump and Xi to head off a conflict between the world’s biggest economies that appears to be worsening by the day. Besides tit-for-tat tariff increases, the U.S. has blacklisted Huawei Technologies Co. and threatened other major Chinese tech companies, while Beijing is drawing up a list of “unreliable entities” in the U.S. that could face restrictions.

A pact Trump reached over immigration with Mexico last week encouraged him to take a harder line with China, said White House Acting Chief of Staff Mick Mulvaney. Under that deal, Trump called off planned tariffs on Mexican goods in exchange for a Mexican crackdown on undocumented immigration into the U.S. “It probably emboldens him to take a tougher stance, but that shouldn’t surprise anybody,” Mulvaney said Tuesday in Washington. “What did the president do when it came to Mexico? He tried to figure out a way to get our interests aligned.

I do not see the president’s meeting as a deal closer,” Mulvaney said, adding that it’s an opportunity to get talks ‘hard-wired again’.
The brinkmanship with China puts Xi -- the country’s strongest leader in decades -- in perhaps the toughest spot of his six-year presidency. If Xi caves to Trump’s threats, he risks looking weak at home. If he declines the G20 meeting, he must accept the economic costs that come with Trump possibly extending the trade conflict through the 2020 presidential elections.

The arguments for Xi to meet Trump mostly revolve around the need to prevent greater economic damage. China’s imports tumbled in May, underscoring domestic economic weakness that could hurt global growth. For China, 25% tariffs could result in a drag of nearly 1% on growth by 2021 if they remain in place, according to Bloomberg Economics.

Xi, however, also has reasons to avoid a meeting with Trump. China has repeatedly said it won’t be bullied or pressured into negotiating, and Xi could look as if he’s giving Trump a win by meeting him after an explicit threat. By now, Xi Jinping is used to Donald Trump’s tariff threats. But the U.S. president’s latest ultimatum is personal, and the Chinese leader’s response could have far-reaching consequences for his political future.

“Whether they meet or not, none of the possible scenarios are good for President Xi or the economy in the long run,” said Zhang Jian, an associate professor at Peking University. “You don’t have a good choice which can meet the needs of the Chinese economy or Mr. Xi’s political calculations.”

Prodded by hawks in Washington to take a “whole of government” approach toward China, Trump may make it harder for Xi to compromise at the negotiating table. The U.S. administration’s efforts to sell arms to Taiwan and criticise China’s mass-detention of ethnic Uighurs in the remote far west of the country are fueling nationalist fears in Beijing that the U.S. wants to weaken and contain its biggest rival.

At the last meeting between Trump and Xi at the G-20 in Argentina last year, they emerged with a 90-day truce that opened space for more talks. Those collapsed last month after Trump accused China of reneging on parts of the agreement, leading to an increase in tariffs and stronger actions against Huawei.

What’s more, Chinese officials increasingly feel like working-level talks aren’t leading anywhere. One Chinese trade official said discussions with the U.S. had reached a point where no further progress could be made without the intervention of the two presidents. And besides, Trump has a track record of escalating tensions dramatically before cutting a deal in a personal meeting.

“The best approach for China is to not reply to Trump’s words but wait a few days and then announce that Xi will attend the G-20,” said Wang Peng, associate research fellow at the Chongyang Institute for Financial Studies at Renmin University of China. “Meeting Trump is risky for everybody, but Xi can manage and control that risk.”

Since talks collapsed, China’s state media has ramped up nationalist rhetoric. The Communist Party’s flagship People’s Daily newspaper ran a commentary last month saying China will never make decisions that ‘give up power and humiliate the country’, a phrase used in school textbooks to describe the treaties China signed mostly in the 19th century.

“I don’t think the threat will work,” said He Weiwen, a former commerce ministry official who is now a senior research fellow at the Center for China and Globalisation. “China will reiterate that the U.S. side must have sincerity if they want the talks to continue.” Previous interactions with Trump don’t help much in making the decision. When Trump flirted with a more formalized relationship with Taiwan early on in his presidency, China refused any contact until he reaffirmed the U.S.’s ‘one-China’ policy. Within weeks, Trump caved.

Still, Xi has also watched as Trump repeatedly escalated a trade war despite hailing a personal friendship between the two men. And even assuming they do meet, the best outcome could be another temporary truce that only prolongs the uncertainty. Either way, Xi has a lot riding on the decision. He became China’s most powerful leader possibly since Mao Zedong after scrapping term limits last year, a move that could backfire if the economy tanks. Interesting point is the question what will President Xi do, because he’s the ultimate decision-maker.

In China, the crowd believe he wants a third and fourth term. If in 2020 you see the Chinese economy suffer, then his road to a third term looks less rosy.

*International commentator for European Business Review and editor-in-chief of Kriek Media