Don­ald Trump and Xi Jin­ping have bro­kered peace. It will be sorely tested

The Guardian Australia - - Opinion - Kevin Rudd

What Don­ald Trump and Xi Jin­ping did in Buenos Aires was buy time. Three months, in fact. Which is good when mea­sured against the al­ter­na­tive: which was a full-blown trade and broader eco­nomic war be­tween the two coun­tries. Which in turn had the po­ten­tial to trig­ger a fur­ther col­lapse in global mar­ket sen­ti­ment, par­tic­u­larly com­ing on the back of other neg­a­tive trends emerg­ing in both the US and Chi­nese do­mes­tic economies.

But a word of cau­tion to mar­kets, even from those of us who have been ar­gu­ing pub­licly that on bal­ance a deal of some sort be­tween China and the US was more prob­a­ble than not: one swal­low doth not a sum­mer make. Much can still un­ravel. Both Trump and Xi have in­deed bought valu­able, though lim­ited, time for them­selves and the world. But for dif­fer­ent reasons.

There are five com­plex bas­kets of pol­icy dis­agree­ments to work through. First, the cur­rent an­nual $370bn bi­lat­eral trade deficit needs to be re­duced. Ma­jor Chi­nese pur­chases of Amer­i­can nat­u­ral gas will ac­count for much of this, and prob­a­bly at the ex­pense of Qatar and Aus­tralia, both US al­lies. Trump also stressed that China would be­gin to pur­chase more agri­cul­tural prod­ucts, though what ex­actly this will en­tail is un­clear.

Then there are the pos­si­ble cuts to tar­iff rates them­selves. The Chi­nese av­er­age tar­iff rate cur­rently stands at about 9.8% com­pared with a US av­er­age tar­iff rate of 3.4%. Then there are those in­dus­try sec­tors that are most po­lit­i­cally sen­si­tive in each econ­omy, led by agri­cul­ture: Re­pub­li­can-vot­ing farm­ers in the US, matched by China’s his­tor­i­cal para­noia over na­tional grain self-suf­fi­ciency.

One rad­i­cal solution from China might be to pro­pose a phased but quick re­duc­tion of av­er­age tar­iff rates to zero (or as close to zero as you can get). That would cap­ture global mar­ket sen­ti­ment big time by row­ing back the cur­rent tide of global pro­tec­tion­ism, putting flesh on the bones of Xi’s Davos dec­la­ra­tion in Jan­uary 2017 as the cham­pion of free trade.

Then there are the three hardy peren­ni­als: in­tel­lec­tual prop­erty pro­tec­tion; forced tech­nol­ogy trans­fer (a US term); and the use of the full re­sources of the Chi­nese state to sup­port China’s stated na­tional in­dus­trial strat­egy (Made in China 2025) to dom­i­nate global ad­vanced tech­nol­ogy mar­kets and prod­uct stan­dards by 2030. These three are the re­ally ugly ones.

Set­ting a dead­line of 1 March 2019 to re­solve these five prob­lems is smart. Par­tic­u­larly if it’s driven hard by the prospect of a fur­ther work­ing-level sum­mit with Trump and Xi later in March. Al­ter­na­tively, it can be ar­gued that 90 days is so am­bi­tious that it’s un­re­al­is­tic, and sets both sides up for fail­ure.

But this de­lay also serves Trump and Xi in ad­di­tional ways. By March, Trump will have a fuller idea of the lay of his do­mes­tic eco­nomic and po­lit­i­cal land­scape. He will then know the ex­tent of any sig­nif­i­cant soft­en­ing in the econ­omy al­ready in­duced by mon­e­tary pol­icy tight­en­ing by the Fed, and the ex­tent to which the Amer­i­can econ­omy could then sus­tain fur­ther tar­iffs should the ef­forts of Chi­nese and Amer­i­can of­fi­cials have come to naught.

On the po­lit­i­cal front, the Mueller in­ves­ti­ga­tion should also have re­ported by March. If the re­sults of the in­ves­ti­ga­tion are se­ri­ously bad for Trump, then we should be alert to the pos­si­bil­ity of Trump hav­ing a re­newed in­ter­est post-Mueller in dou­bling down against China – if he is found then to have been com­pro­mised on Rus­sia. That cer­tainly is an “X fac­tor” that our Chi­nese friends are wor­ried about.

March, how­ever, also presents

Xi and his chief eco­nomic ad­viser, Liu He, with op­por­tu­ni­ties of their own. A se­ri­ous com­mit­ment to trade lib­er­al­i­sa­tion from Beijing, ac­com­pa­nied by the un­der­ly­ing mes­sage of com­pet­i­tive neu­tral­ity be­tween pri­vate firms and state-owned en­ter­prises, would re­in­force Liu’s valiant ef­forts in re­cent months to re-pros­e­cute the full im­ple­men­ta­tion of China’s stalled “phase two” eco­nomic re­form pro­gramme, first an­nounced in 2013. This is some­thing that China des­per­ately needs for its own eco­nomic in­ter­ests. Pri­vate sec­tor busi­ness con­fi­dence has been stalling since early 2018, well be­fore the trade war be­came a re­al­ity.

On the in­ter­na­tional front, March would also en­able Xi to take a bold trade mes­sage to Davos in Jan­uary, should he de­cide to go. China has sought to mo­bilise global sen­ti­ment in sup­port of its ef­forts to up­hold the global eco­nomic and en­vi­ron­men­tal or­der. A ma­jor Chi­nese an­nounce­ment on trade lib­er­al­i­sa­tion across the board, not just on a bi­lat­eral ba­sis with the US, could take the world by storm. It would also send a stark sig­nal to the world on the 40th an­niver­sary of the Chi­nese econ­omy’s “re­form and open­ing up”. And that in­deed could rep­re­sent a se­ri­ous new chal­lenge to Amer­i­can global lead­er­ship.

• Kevin Rudd is a for­mer prime min­is­ter of Aus­tralia and pres­i­dent of the Asia So­ci­ety Pol­icy In­sti­tute in New York.

Pho­to­graph: An­drew Harnik/AP

‘Both Trump and Xi have bought valu­able, though lim­ited, time for them­selves and the world.’

Pho­to­graph: Saul Loeb/AFP/Getty Images

‘By March, Trump will have a fuller idea ofthe lay of his do­mes­tic eco­nomic and po­lit­i­cal land­scape – in­clud­ing the out­come ofthe Mueller in­ves­ti­ga­tion.’

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