The ‘trade war’ between the U.S. and China will be front and center at the next, long-heralded meeting between U.S. President Donald J. Trump and Chinese President Xi Jinping at the G20 meeting, which begins November 30 in Buenos Aires, Argentina. But the outcome, even the meeting itself, is still a matter for concern. Trump is determined to carve out an agreement that is fair to the United States, and Xi is resolute about strengthening the Chinese economy and ensuring his position as a world leader.
The tensions in recent months between China and the U.S. have created economic problems for both countries. Xi and Trump were able to take a step back from the precipitating crisis with a conciliatory telephone call early in November. But at the more recent Asia-Pacific Economic Cooperation (APEC) summit that took place in Papua, New Guinea at the end of November, the bickering between China and the U.S. did not bode well for the upcoming talks. The discussions were clouded by disagreements over trade and security, and, in the end, the participants could not agree on the wording of a final communiqué.
According to a senior Chinese diplomat, the failure resulted from ‘certain countries’ excusing protectionism. But an American official called that ‘spin’, saying, “All 20 out of 21 nations were prepared to sign on with the language that was finalized, with the exception of China.”
Off-line talks between Xi and Trump are still planned for the G20 meeting in December. But the economic upheavals that are occurring in the meantime are taking their toll.
An initial proposal from China fell short of Trump’s expectations for major reforms, and pre-G20 jitters were exacerbated when China’s delegation to pre-meeting negotiations cancelled its plans to come to the US after Thanksgiving, although a Chinese Foreign Ministry spokesman said the economic teams of both countries are still in close contact. And the official Xinhua news agency reported that Xi said he and Trump would have a “deep exchange of views” when they meet in Argentina
What’s at Stake?
The high stakes that are associated with all these fits and starts go beyond trade issues and make these talks all the more complex and urgent. Both the United States and China have slapped tariffs on hundreds of billions of dollars of each other’s goods and Trump has threatened to raise the tariffs from 10% on certain goods to 25% of everything China exports to the U.S. if the issues that divide them cannot be resolved by January 1.
The issues are significant and they go far beyond trade. Trump’s administration has accused China of interfering in U.S. politics, and of stealing American technology to further its goal of being a technological leader of the world. The two have also disagreed over the Chinese development in the South China Sea, where China has been building military facilities on islands they created in the sea, which the U.S. says is international waters. They also disagree on the independence and self-rule of Taiwan, which China claims as its own, and which the U.S. unofficially supports as an independent nation.
And then there is trade. Soy farmers in America are hurting badly after China put a 25% tariff on American soybeans in July. The Chinese, who are the largest buyers of soybeans in the world, bought $12 billion worth of American soybeans in 2017, about half of American soybean exports. But with the new tariffs, they are seeking new suppliers in Brazil and Argentina, neither of which is likely to be able to provide enough for China’s needs. The Chinese now face a 25% shortfall in soybean imports during the final quarter of 2018, while the market for American soybeans has diminished and prices have dropped significantly. While China seeks suppliers, American farmers seek markets. This is, therefore, a key issue for both the Chinese and the Americans.
There are other issues as well, but these will suffice to explain some of the complexities of the upcoming talks between Trump and Xi.
There will be much at stake in these meetings on the sidelines of the G20 summit, and their countries will be watching carefully to see how they proceed. Both leaders want to get the talks back on track for many reasons, and the people of both countries want their leaders to succeed, because the unresolved issues are hurting everyone.
China is in the midst of serious economic difficulties that are getting progressively worse, and American farmers and manufacturers are feeling the pinch of Chinese and American tariffs. But the fact that both China and the U.S. will be better off with an agreement that is acceptable to both is not enough to ensure that the talks will be easy or that they will go well.
The pressure on the two leaders is significant, but so is the need for a serious change in the way the two countries do business together. Trump has made it clear that is not okay for Americans scientists and engineers to develop costly and valuable technology, only to have it stolen by the Chinese, who subsidize it heavily and manufacture it more cheaply. They then use the stolen technology in their own products, and compete with the U.S. in the world market. Trump has told Xi that this is a situation that must be changed in any agreement with China.
Donald Trump, as we know, is a superb negotiator. Some would say it’s what he does best. And he is coming to the table from a position of strength, which bodes well for the American side of the discussion. Xi, on the other hand, brings with him the baggage of a faltering economy, exacerbated by the tariffs imposed on his country by the U.S., which weakens his position at the bargaining table. He also carries the burden of the Chinese tradition of ‘saving face’. The Chinese put great stock in how Xi will look after the negotiations have concluded. He will need to look like a winner, whatever the outcome. So throughout the talks, Xi will be taking strong positions as he tries to reach an agreement with Trump without ‘losing face’, standing up to the man the Chinese call the “trade bully”.
Trump’s initial demands back in early May were tough, even punitive. For Trump, this was a typical way of opening negotiations – harsh, exacting, and often extreme. For Xi, they were daunting. But this is the way that Donald Trump negotiates. We have seen it before, and no doubt we will see it again. First, he lays down the strongest terms he can apply, some of them unreasonable or even impossible to meet. Then, in the course of negotiations, he will bend towards a middle ground on which some agreement can be achieved. It is a classic negotiating style and he is expert at it.
When President Xi meets President Trump in Buenos Aires, he needs to come prepared to bend as well. The issues are tough, but not insurmountable. And there may not be an agreement, ready to sign, at the end of the discussions. But hopefully, the two sides will be considerably closer and Xi will not have lost face with his people.
One thing seems clear. Here in America the economy, which had been surging until it faltered in October, is now holding its breath, waiting for the trade war between China and the United States to end. When it finally does, there will be a collective sigh of relief and the economy will show its gratitude. The farmers will be happy that the large soybean market will be open for them again. Manufacturers of steel and aluminum products, hit hard by the tariffs imposed by China on their raw materials, will once again gear up for an expanded and growing market. And the stock market will likely show renewed energy as commerce resumes.
A lot rides on Presidents Trump and Xi. One can hope that whatever obstacles lie in the path of their progress, they will be able to overcome them and reach an agreement that will allow both countries to enjoy the benefits of a fruitful relationship that is fair and profitable for both.