{"id":104681,"date":"2017-04-11T11:11:08","date_gmt":"2017-04-11T15:11:08","guid":{"rendered":"http:\/\/countingpips.com\/?p=104681"},"modified":"2017-04-11T10:31:32","modified_gmt":"2017-04-11T14:31:32","slug":"the-trump-xi-summit-paves-the-way-to-new-realism-in-us-chinese-trade","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/04\/the-trump-xi-summit-paves-the-way-to-new-realism-in-us-chinese-trade\/","title":{"rendered":"The Trump-Xi Summit Paves the Way to New Realism in US-Chinese Trade"},"content":{"rendered":"
April 11, 2017<\/div>
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By Dan Steinbock<\/strong><\/p>\n

Despite preliminary pessimism, the Trump-Xi Summit showed greater trade pragmatism than initially expected, even though it was overshadowed by a raw display of US military power.<\/strong><\/p>\n

President\u00a0Donald Trump\u00a0says he developed a “friendship”\u00a0with\u00a0President Xi Jinping\u00a0at Mar-a-Lago.\u00a0However, U.S. missile attacks against Bashar al-Assad’s forces in Syria overshadowed the meeting. Apparently, the White House hoped to kill two birds with one stone: to show to al-Assad who was in control and to Xi what might happen to North Korea if China would not intervene more decisively.<\/p>\n

In the process, geopolitics cast a shadow over the meeting’s economic agenda, which had\u00a0evolved after December when State Councilor\u00a0Yang Jiechi visited Trump Tower and spoke about Chinese core interests. A day later, Trump talked on the phone with Taiwanese President Tsai Ing-wen and suggested that decades-old one-China policy could be used as a bargaining chip.<\/p>\n

After a bilateral rhetoric tit-for-tat, Washington and Beijing began efforts to reduce tensions and a complementary channel was opened by China\u2019s US ambassador Cui Tiankai with Jared Kushner, Trump\u2019s son-in-law and trusted senior adviser. In February, these efforts led to Trump\u2019s re-affirmation of the one-China policy and in March Secretary of State Rex Tillerson\u2019s Beijing visit where he described the basis for US-China ties as \u201cnon-conflict, non-confrontation, mutual respect, and win-win cooperation.\u201d While Democratic and Republican critics saw it as a sign of appeasement, optimists saw it a new a bilateral opening.<\/p>\n

The stakes are huge. Starting with Deng Xiaoping\u2019s economic reforms, US-China merchandise trade has grown from $2 billion in 1979 to $579 billion in 2016. Today, China is the US\u2019s second-largest merchandise trading partner, third-largest export market, and biggest source of imports.<\/p>

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White House divided<\/strong><\/p>\n

During the campaign, Trump threatened to use\u00a035-45% import tariffs against those nations that have a significant trade surplus with the US. In the White House, his team has floated 10% tariffs. To signal determination, Trump\u2019s trade warriors – the head of the National Trade Council Peter Navarro, US Trade Representative Robert Lighthizer, trade advisor CEO Dan DiMicco and Secretary of Commerce Wilbur Ross – have singled out nations that have large trade surplus with the US. In 2016, the deficit list was topped by China ($347\u00a0billion), Japan ($69 billion), Germany ($65 billion), Mexico ($63\u00a0billion), and Canada ($11 billion).<\/p>\n

In substance, Trump’s bilateral deficit obsession is a relic from the mercantilist era. Historically, US trade deficits began in the 1970s, not with China\u2019s rise in the 2000s. Moreover, these deficits\u00a0are multilateral, not bilateral. They\u00a0have prevailed more than four decades with Asia; first with Japan, then with the newly-industrialized Asian tigers and more recently with China and emerging Asia. However, since Trump won the presidency with his mercantilist rhetoric, he needs perceived deficit concessions.<\/p>\n

At Mar-a-Lago, besides the Trump-Xi talks, U.S. cabinet officials held meetings with their Chinese counterparts. Led by the Treasury Secretary Steve Mnuchin, the\u00a0economic teams had a breakfast meeting on Friday, while a trade meeting included Commerce Secretary Wilbur Ross and Director of the National Economic Council Gary Cohn. It was a Goldman Sachs play. Cohn is the investment bank’s former president; Mnuchin, its former hedge fund manager. The two support a tough but more cooperative approach with China.<\/p>\n

It is a not-so-secret-secret that the White House\u2019s advisers have been split by internal battles between those Trump advisers (Navarro, DiMicco), who advocate aggressive measures to challenge China on trade, and their opponents (Mnuchin, Cohn), who prefer a moderate tone. While sympathetic to the trade hawks, Ross leans\u00a0onto the moderates. Like Trump, they know only too well that short-term wins in trade battles could easily be undermined by long-term friction in bilateral relations that could hurt vital US fiscal, monetary, defense and security interests.<\/p>\n

Toward bilateral investment treaty<\/strong><\/p>\n

By 2015, barely 1% of the stock of US FDI abroad was in China. But things are changing. After US investment in China peaked at more than $20 billion in 2008, it has stayed around $12-$15 billion annually. In the same time period, China\u2019s investment in the US soared from a few hundred million dollars to $15 billion in 2015, tripling to $45 billion in 2016.<\/p>\n

Since 2008, Washington and Beijing have been in talks about a bilateral investment treaty (BIT) to expand investment opportunities in the two countries.\u00a0While the original goal was to complete an agreement by the end of President Obama\u2019s second term, the latter\u2019s geopolitical plays undermined the investment objective.<\/p>\n

Somewhat like China\u2019s membership in the World Trade Organization (WTO) in 2001, China\u2019s pursuit of a BIT with the US offers domestic gains as well. It could accelerate structural economic reforms in the mainland and is very much in line with President Xi\u2019s medium-term goals\u00a0and the rebalancing of the Chinese economy.<\/p>\n

One possible bilateral scenario that has been discussed involves Chinese investment in US infrastructure, including bridges, roads and airports. Beijing is\u00a0interested in such prospects, but the Trump administration would still have to reconcile suchideas with its \u201cBuy America\u201d doctrines.<\/p>\n

While the BIT would certainly facilitate investments in the two nations, it would support Trump\u2019s infrastructure initiatives. Nevertheless, the Trump administration would have to portray it as a trade pact that would\u00a0not\u00a0result in US jobs being offshored to China.<\/p>\n

Toward a compromise trajectory<\/strong><\/p>\n

Before the Summit, the White House hoped President Xi would in some way address Trump\u2019s concerns about the US trade deficit with China. For instance, Beijing has pledged to reduce overcapacity in steel, but the central government has not yet engaged in broad plant closures. Instead, local governments, which depend on factories for taxes and employment, still maintain substantial production levels.<\/p>\n

If these issues were addressed behind closed doors, the Chinese negotiators may have reassured the Trump advisers that broad-scale plant closures are in the agenda but that likely to ensue only after the Chinese politburo summit in the fall.<\/p>\n

Tough economic reforms require political consensus in both China and the US.<\/p>\n

Like the Reagan administration did with Japan in the 1980s, the Trump administration may also have hoped for a deal in which China would \u201cvoluntarily\u201d agree to limit production and exports to carry out its pledges about overcapacity and to ease trade tensions. However, China is neither Japan nor dependent on the US alliance system in Asia Pacific, as Japan is. Moreover, US-Chinese trade involves much more than autos and consumer electronics. Consequently, incentives for voluntary restraints are marginal.<\/p>\n

After the two-day summit at Mar-a-Lago, the US and China announced a 100-day plan to improve strained trade ties and boost cooperation between two nations. Trump negotiators characterized the first Trump-Xi Summit with references to \u201cpositive\u201d chemistry.<\/p>\n

Reportedly, China will offer better market access for U.S. financial sector investments, while ending the ban on U.S. beef imports that has been in place almost 15 years. While Washington would like Beijing to lower the 25% tariff on automotive imports, Beijing would like Washington to relax restrictions on advanced technology sales to China. Meanwhile, the Trump administration is preparing an executive order that would probe dumping from foreign companies and could result in tariffs, while steel and aluminum will be targeted.<\/p>\n

While such concessions represent relatively modest progress in bilateral relations, Commerce Secretary Ross believes both sides agreed to speed up trade talks to recalibrate their bilateral imbalance: \u201cThis may be ambitious, but it\u2019s a big sea change in the pace of discussions.\u201d<\/p>\n

Dialogue matters<\/strong><\/p>\n

Before the Trump-Xi Summit, some felt it was premature and could undermine recent progress in bilateral relations. Others saw the meeting as a\u00a0window of opportunity that should not be missed \u2013 as happened in 2013 in Sunnylands, California, when Obama rejected Xi\u2019s offer of \u201cnew type of major power relations.\u201d<\/p>\n

The simple reality is that, without efforts at stabilization\u00a0in the US-Sino relationship, aggressive bilateral rhetoric could\u00a0derail\u00a0more than four decades of bilateral normalization.\u00a0As Xi said at Mar-a-Lago: “There are a thousand reasons to make the Sino-US relationship work, and no reason to break it.”<\/p>\n

That’s where the Trump-Xi Summit did succeed \u2013 it paved a way for a sustained dialogue and potential compromise trajectories, despite differences.<\/p>\n

About the Author:<\/em><\/strong><\/p>\n

Dr Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see http:\/\/www.differencegroup.net\/\u00a0<\/a><\/p>\n

The original version was published by China-US Focus on April 11, 2017.<\/p>\n

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By Dan Steinbock Despite preliminary pessimism, the Trump-Xi Summit showed greater trade pragmatism than initially expected, even though it was overshadowed by a raw display of US military power. President\u00a0Donald Trump\u00a0says he developed a “friendship”\u00a0with\u00a0President Xi Jinping\u00a0at Mar-a-Lago.\u00a0However, U.S. missile attacks against Bashar al-Assad’s forces in Syria overshadowed the meeting. Apparently, the White House hoped […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-104681","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/104681","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=104681"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/104681\/revisions"}],"predecessor-version":[{"id":104683,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/104681\/revisions\/104683"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=104681"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=104681"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=104681"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}