Gulf News

Xi sees Trump as an em­peror with no clothes

China-US trade truce din­ner in Buenos Aires was a one-sided vic­tory for Bei­jing

- The writer is CEO and Man­ag­ing Part­ner of Proa Global Part­ners llc and a fac­ulty mem­ber at Johns Hop­kins Univer­sity. By Harry G. Broad­man Finance · U.S. News · Politics · Elections · Business · Donald Trump · Xi Jinping · Buenos Aires · G20 · Washington · Beijing · United States of America · China · World Trade Organization · White House · Communist Party of China · New York City · the Chinese government · Buenos Aires Province

Mar­kets around the world held their breath wait­ing for the out­come of the din­ner be­tween Xi Jin­ping and Don­ald Trump in Buenos Aires fol­low­ing the meet­ing of the G20, to see if the two lead­ers could end their trade war. Or at least back off a bit.

Read­ing from al­most all the press re­ports in the af­ter­math of the din­ner, one would come away think­ing that the truce struck was a vic­tory for both sides. It’s hardly a truce.

And if it qual­i­fies as a vic­tory, it is most as­suredly one-sided.

What was the ac­tual re­sult? The core of it is that Wash­ing­ton pledged to de­lay rais­ing the ex­ist­ing 10 per cent tar­iffs it has im­posed on $200 bil­lion of Chi­nese mer­chan­dise to 25 per cent. In turn, Bei­jing pledged to in­crease its pur­chases of US mer­chan­dise, largely agri­cul­tural goods.

That sounds straight­for­ward enough, but the “deal” comes with ma­jor wrin­kles, glosses over (if not misses en­tirely) the key sources of the trade trou­bles be­tween the two coun­tries, and ex­poses fun­da­men­tal con­tra­dic­tions in the US trade pol­icy stance to­wards China.

First, Wash­ing­ton’s de­lay of the tar­iff in­creases is good for only 90 days. The US in­formed China that dur­ing this pe­riod it will work to­wards a broader trade agree­ment cov­er­ing China’s poli­cies of forced tech­nol­ogy trans­fer, weak in­tel­lec­tual prop­erty pro­tec­tion, high non-tar­iff bar­ri­ers to trade, and cy­ber­at­tacks on US firms.

Any­one fol­low­ing US-China eco­nomic fric­tions knows full well that these are some of the thorni­est prob­lems em­bed­ded in China’s trade pol­icy regime. They’ve been top­ics un­der dis­cus­sion for many years — go­ing back to at least the early 1990s when I started to work in China. It is pure fan­tasy that any­thing mean­ing­ful will — or could — be agreed to within three months’ time on these ar­eas.

Worse still, in the Chi­nese read­out from the din­ner, Bei­jing did not sig­nal strong en­dorse­ment with the top­ics on the US-tabled agenda for dis­cussing deeper re­forms nor such a timetable. On the other hand, China is more than de­lighted to ac­cede to the US re­quest for greater pur­chases of US soy­beans and man­u­fac­tur­ing prod­ucts.

Does this re­ally sound like a two-sided deal?

Sec­ond, for the US — as well as for the rest of the world — the strate­gic chal­lenge with China is that fun­da­men­tally it is not a bona fide mar­ket econ­omy. More im­por­tantly, it has not lived up to its le­gal com­mit­ments un­der its 2001 WTO ac­ces­sion agree­ment to re­form into one.

Yet the White House — whether in Buenos Aires or Bei­jing or Wash­ing­ton — does not squarely fo­cus on this is­sue.

In­stead, the Trump trade team con­tin­ues to fight the wrong bat­tle with China, uses the wrong weapons, and is in the trench alone while China’s harm to the US is lit­tle dif­fer­ent from what it in­flicts on the world’s other ma­jor trad­ing part­ners. What do I mean?

Trump’s pre­oc­cu­pa­tion — ac­tu­ally it bor­ders on be­ing a fetish — with re­duc­ing the US bi­lat­eral mer­chan­dise trade deficit with China is a wholly mis­placed bat­tle. Bi­lat­eral trade deficits in and of them­selves are not eco­nom­i­cally mean­ing­ful — es­pe­cially in a world where sup­ply chains are multi­na­tional.

If any­thing, they re­flect symp­toms rather than a dis­ease.

At the same time, tar­iffs, which, af­ter all, are re­ally taxes on im­ports, are very crude in­stru­ments to try to in­duce eco­nomic change “up­stream” in a sup­ply chain. Per­haps if China were truly a mar­ket-driven econ­omy, where prices are set freely by sup­ply and de­mand, tar­iffs might bring about some changes “be­hind-the-bor­der”.

But in non-mar­ket economies, prices do not hold the im­port in con­vey­ing value as they do else­where.

Core trade prob­lems

More to the point, in the case of China, the core trade prob­lems are in­her­ently part of the un­der­ly­ing fab­ric of the coun­try’s do­mes­tic econ­omy.

The back­bone of China’s eco­nomic en­gine re­mains dom­i­nated by large sta­te­owned en­ter­prises (SOEs), propped up by large state-owned banks (SOBs). The rub is that the SOEs and SOBs are at the core of the Com­mu­nist Party’s rai­son d’etre and the “so­cial­ist mar­ket econ­omy” phi­los­o­phy that has un­der­pinned China’s po­lit­i­cal econ­omy struc­ture since 1978.

To say it’s go­ing to take a lot more than tar­iffs to un­wind these would be an un­der­state­ment.

It’s no sur­prise Trump prefers to ne­go­ti­ate bi­lat­er­ally. But struc­tur­ing one-off real es­tate trans­ac­tions in New York are no match for to­day’s com­plex­i­ties of craft­ing global trade deals. In fact, when an op­pos­ing party en­gages in trade prac­tices that many of your clos­est al­lies also judge to be un­fair, it makes no sense to not bring them into the fold to strengthen your ne­go­ti­at­ing lever­age.

Yet that is ex­actly the for­mula Trump has been fol­low­ing — and not just with re­spect to China but all other trad­ing part­ners.

Fi­nally, the ac­cord Trump struck with Xi at the din­ner has only deep­ened the openly con­tra­dic­tory US trade pol­icy the White House has been pur­su­ing with China. Here’s the con­tra­dic­tion in a nut­shell: the US as­serts it is ap­palled over China be­hav­ing as a non-mar­ket econ­omy but then goes ahead and asks the Chi­nese govern­ment, it­self, to pur­chase more US ex­ports.

Is it any won­der why Xi thought the din­ner was a great suc­cess and his top eco­nomic ad­vis­ers con­tinue to shake their heads try­ing to make sense of US trade ne­go­ti­a­tion strat­egy?

 ?? José Luis Bar­ros/©Gulf News ??
José Luis Bar­ros/©Gulf News

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