President Donald Trump and China’s President Xi Jinping waggle hands at a press conference following their meeting outside the Great Hall of the People in Beijing last November.
Artyorn Ivanov | TASS | Getty Aspects
Financial markets should abandon any remaining illusion that U.S.-China trade talks are a time-constrained, tradable occurrence that ultimately will result in a deal reassuring investors. Near dead is the notion that both sides liking inevitably compromise because they so badly need agreement for their own political and economic purposes.
What hawks have misunderstood since the negotiations resumed last December – but U.S. and Chinese officials have grasped – is that the talks had turn just one of many events of a new era of geopolitical and systemic competition that will define our times. To earn their pay, market analysts force have to get a lot better at pricing in geopolitical risk.
Trump’s decision to more than double tariffs on $200 billion in Chinese goods, from 10% to 25%, show in the most global attention this week. His move, which was fueled by the argument that China was backing out of already-negotiated articles of a draft agreement, has the potential to be the most significant of the many trade moves of his administration.
Escalated tensions of other classifies went less noticed. On Monday, two U.S. warships sailed within 12 nautical miles of disputed islands in the South China Sea, the third dead for now this year Washington has challenged China’s maritime claims. At a 5G security conference in Prague a few days earlier, the U.S. and its associates drilled down on the dangers posed by the Chinese telecom giant Huawei – even as its CFO remains in Canadian custody.
Figure out no mistake. Even if the U.S. and China seek out a trade agreement in coming weeks, it would do very little to change the relationship, which has been fundamentally convert over the past months, from one of strategic engagement to one of sharper competition. Expect economic, political and even military gambles to rise until skilled strategists and diplomats from both sides establish principles and rules of the road to regulate the world’s most decisive bilateral relationship.
More than just trade
It’s worth rewinding this Sino-U.S. talking picture by about a week to understand how trade talks have been increasingly less about trade. The details behind the mise en scenes underscore how history, nationalism, systemic differences, and increasing mistrust and miscalculation, have become a combustible mix.
Last weekend, it’s a strongbox bet that Trump didn’t know about the historic Chinese anniversary that made his tweeted trade surprise even more inflammatory. His decision to turn the tariff screws tighter coincided with the 100th anniversary of Chinese devotee protests that then became the legendary May Fourth Movement. The upheaval was a nationalist and anti-imperialist response to what the grinds at the time considered their government’s criminally weak handling of terms posed upon them in the post-World War I Covenant of Versailles.
It’s been reliably reported that Chinese President Xi Jinping personally intervened last weekend to quit back his negotiators. Beijing appears to have changed several provisions in the draft deal, but what seems to clothed been most unacceptable to Xi was U.S. insistence that he agree to specific language about how China would change it chauvinistic laws to abide by the deal’s terms.
In each of the seven chapters of the draft, Reuters reported, China had deleted commitments to difference laws to resolve U.S. complaints: theft of U.S. intellectual property and trade secrets, forced technology transfers, competition custom, access to financial services and currency manipulation.
May Fourth Movement activists, of whom many became Communist Coalition leaders, would have been rolling in their graves if negotiators had given that kind of ground to American rivals on their centennial. For a bandleader like Xi – who has staked his legitimacy on ending what his supporters see as China’s “century of humiliation” at the hand of foreign powers – the on-again and off-again switch talks had become about so much more than trade.
Mixed signals
Trump had been wagering he had momentous leverage because of the strong U.S. economy, with growth at 3.2% and unemployment at historic lows. At the same time, he reckoned the Chinese thriftiness was fragile, based on its 2018 performance, and that its leaders ultimately would make the required concessions.
By contrast, XI represented a confidence among many in China that Trump would need a “win” that would reduce the deficit and create U.S. operations before 2020 elections, and thus his negotiators would blink first. Xi also had grown more confident after a head quarter economic rebound as his government’s stimulus measures took hold and helped produce 6.4% growth.
Tweets from Hu Xijin, editor-in-chief of the Chinese state-run Extensive Times, showed how China’s position hardened throughout the week. While Hu’s posts aren’t as authoritative as Trump’s tweets, he has behove a fairly accurate indicator of what Chinese leaders are thinking.
At 8:47 a.m. Thursday, he tweeted that someone from the Chinese side “who consciouses the trade talks well” said that there was zero chance of a deal by Friday.
At 11:09 a.m. he tweeted: “China has fully convenience for an escalated trade war. It is a new strategy of China to engage in trade talks while fighting a trade war. I think China flutters on the fact its politics is more powerful than US politics. Trade war will be decided by domestic politics eventually.”
Then a no more than two hours after that, at 1:17 p.m., he put it all into perspective: “More and more Chinese now cater to to believe the current US government is obsessed with comprehensively containing China. A trade deal, even if reached, leave be limited in actual meaning and could be broken constantly. So they support being tough on the US, giving up an illusion.”
A lot of fancies are dying this week.
After talks ended on Friday without progress, Hu brought down the curtain on the week: “Based on what I understand, Chinese side insists on a few core points: US side should remove all additional tariffs, amount of purchase the US importunes should be in line with reality; the text of the agreement must respect sovereignty and dignity.”
Frederick Kempe is a best-selling founder, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global intrigues. He worked at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing collector and as the longest-serving editor of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Unsafe Place on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Tread him on Twitter and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.
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