A Handshake Is Nice, But It Ain’t A Done Deal

When writing about the volatile President of the United States one has to provide a warning label: What follows is subject to obsolescence without warning. As China’s trade negotiators claim to have discovered when dealing with Trump’s commitments.

It seems like only several hundred tweets ago — on October 11 as ordinary folk keep their calendars — that President Trump announced “We’ve come to a deal pretty much, subject to having it written”. Pursuant to that “Phase One” agreement Trump agreed to hold off on some planned tariff increases and, he told a press conference, China promised to increase purchases of US agricultural products to an annual rate of $40bn-$50bn. Never mind that the President’s advisors told him that America’s farmers could increase output by only $20bn. His response: “I want more. Tell them to buy bigger tractors”.

Or that China refuses to agree to such purchases because it fears that if it does Trump’s appetite for concessions will only increase by what it fed on. And that — get this — because such an agreement would discriminate against other countries, and China does not believe in discriminatory trade practices.

The lack of anything that might be called “a deal, pretty much” did not prevent the president from making his televised announcement that such a signing was in the offing, an announcement he repeated at week’s end. See opening warning.

As things now, and I do mean now stand, Trump is willing to defer further tariff increases but is refusing to roll back tariffs before China proves it is living up to any agreements it might make, which it has not done in the past, and Xi Jinping cannot sign any agreement that does not include a tariff roll-back lest he throw petrol on the flickering flames of internal dissent. Talk of a meeting of Presidents very soon has been replaced by talk of a meeting of lower level staff some time next year.

Many Washington observers believe that impeachment talk has persuaded Xi that Trump’s days as occupant of the White House are numbered, and that China will receive more generous treatment from a Democratic successor. He might be right about the outcome of the 2020 election, especially if the Democrats select a leftier member of the gaggle now angling for their party’s nomination, in which case the President will most likely be awarded four more years in which to Make America Great Again. But Xi most likely is wrong in expecting a kinder, gentler face across the negotiating table.

Trump has succeeded in making it impossible for a successor, especially one beholden to the protectionist trade unions, to turn the other cheek when confronted by China’s predatory trade practices. If he does have to repair to Mar-a-Lago to lick his wounds after the 2020 election, he will be certain to have whomever he selects to write his memoirs credit him with having created bipartisan support for a China policy very different from that of his predecessors. Witness the fact that The New York Times’ left-of-center, star columnist Tom Friedman agrees with former Trump hard-line adviser Steve Bannon that the US must hold to a tough-on-China trade policy. The future structure of trade is set: America will not remove all tariffs on Chinese goods. The flight of manufacturing firms from China will continue as they seek to relocate their link in the international supply chains in countries less likely to be hit by tariffs. Oh yes, China will continue the practices that are so crucial to the success of Xi’s plans for its future dominance of key industries, deal or no deal.

China still wants a deal — its negotiators remain in contact with their US competitors, and its lead negotiator, Liu He, according to Bloomberg told a dinner audience that he is cautiously optimistic although “confused” by the American position. Trump professes himself less in need of a deal, “China would much rather make a deal than I would.” The relative strength of the negotiators is a reflection of the relative strength of their economies.

The Chinese economy is cooling, its zombie companies on life support, slurping credit from banks that are themselves dependent on government support. The US economy, by contrast, is growing, albeit more slowly than last year, jobs are plentiful, wages are rising, consumers are confident, investors are driving share prices from record to record and talk of recession has receded. Trump can smell weakness in a negotiating partner — and exploit it. If there is to be a deal, Trump will have to exploit the advantage provided by the stronger American economy, while at the same time allowing Xi to emerge with his dignity intact. That is the part of the art of the deal that Trump has yet to master.

Not that Trump is free of constraints. Exports to China by farmers whose votes helped put him in office have fallen by more than half. They remain loyal to the President — so far.

Meanwhile, the negotiations are not being held in a vacuum. The troubles in Hong Kong intrude. Congress passed legislation supporting the protesters, with the Senate unanimous and only one of 418 House members voting “no”, amazing in a congress riven by partisanship. If Trump signs the bill, China has promised “strong counter-measures,” strong enough to allow Xi to call this round in the battle for global leadership a draw, but not so strong as to preclude continuing trade talks.

Only one thing is certain as this drama unfolds: Trump is unwinding the relationship between the world’s two largest economies. He has bipartisan support for that radical change in US trade policy. Whether he can parlay fear and dislike of China into a tariff war with Europe and other US allies that the American public find less threatening to America’s geopolitical position than China remains to be seen.