President Trump's brief, 48-hour foray to Buenos Aires for the annual G20 summit appeared to produce, at least initially, modest but pleasant surprises on several fronts. For the president personally, it was probably Trump at his international best - not a high bar for sure, but a significant development nevertheless. The president escaped a "Damn the Torpedoes" performance that characterized his G7 and NATO summits; and he managed with apparent success a delicate series of bilateral meetings with key leaders Shinzo Abe, Narendra Modi, Angela Merkel, Recep Erdogan, and Mauricio Macri.
- At the same time, on the issue where global attention was riveted - the U.S.-China tariff war - both sides hit the pause button. The president pledged to hold off on any further tariff action for 90 days while the two sides worked on an encompassing trade deal focused on systemic change in the Chinese economy.
- And what did the PRC agree to? In the words of the White House, to purchase "a very substantial amount" of agricultural, energy, and other products; president Xi Jingping is also evidently "open" to the Qualcomm/NXP merger, as well as agreeing to crack down on the production of Fentanyl.
- But even White House trade spokesman Larry Kudlow had to admit that actual Chinese commitments remained very much in question. One senses, a week after Buenos Aires, that we may have witnessed another "Singapore Summit:" grandiose statements, signifying little substantively.
So, as the dust settles and after-action reports are penned on this year's G20, what can analysts who are focused on global trade bank on? At least three outcomes stand out:
- First, the Xi Jingping-Trump personal relationship remained warm; the president repeatedly emphasized his personal commitment to the relationship before and after their meeting, and Chinese state media obliged.
- Second, Lighthizer is "the man." Any confusion about who will be leading the U.S.-China dialogue, and whom the president listens to on China trade, was eliminated by the end of the G20 summit: U.S. Trade Representative Robert Lighthizer clearly has the leadership mantle.
- Finally, Chinese Vice Premier Liu He (a formidable Lighthizer counterpart) is anticipated to be leading a platoon of PRC trade officials to Washington next week, to attempt to close the deal – assuming the arrest of Huawei’s CFO in Canada doesn’t upset everything!!
To be clear on the last points: while the raising of tariffs has been tolled for 90 days, to give Lighthizer and Liu He time, nobody realistically expects that a solution to the fractured U.S.-China economic relationship will be found by March 1. The president has identified - correctly - fundamental problems in this relationship that must be corrected by Beijing; and he and this team have been consistent in spelling out exactly what those problems are: Chinese IP theft, forced technology transfers, closed markets, and massive subsidies to state firms, amongst others.
- The challenge for the two sides is probably best illustrated by how each views "Made in China 2025" (MIC 2025) - the 10-year PRC blueprint to achieve global preeminence in 10 technology areas through massive infusions of state funding. The Chinese argue that executing this industrial policy is "what makes China China." But the technology areas outlined in MIC 2025 - especially information technology - are also what will drive U.S. economic growth and global competitiveness through the 21st Century!
Hence, the question is raised again: who blinks first? In advance of Buenos Aires, one frequently heard the following refrain from the White House: "We now have China exactly where we want them!"
- But after the New Year, at the 90-day mark, with the U.S. economy slowing, markets still exhibiting hyper-volatility, the Presidential election cycle by then in full emotional blast, and the Mueller investigation closing in, the reality may be exactly the opposite.
