Early 2019 punditry ranked U.S.-China trade spats at the top or near the top of every geo-political list of worries and risks. Nothing that has transpired to date has lessened the worry or reduced the risk - even with an apparent deal on trade approaching the end-game.
What's on the deal docket?
- The Trump priorities are by now well known: a focus in deficit reduction and market access, with emphasis on PRC purchases of agriculture products and LNG; Chinese tariff reductions in ag, autos and chemicals; improved market access for U.S. financial service companies; and Chinese legislative and regulatory actions to protect foreign investment and preclude forced tech transfer. President Trump’s team has signaled guarded optimism in each of these areas.
- Less publicized, but now the key (apparent) sticking point: enforcement. The U.S. team has insisted on a unilateral right to raise tariffs in the event of PRC violations of the deal, with no right of the Chinese to respond. And now the president is insisting that some of the tariffs he imposed on China will remain even after the deal. No surprise this whole issue has become contentious!
- What won't be touched, except cosmetically? Chinese state subsidies to a broad array of "national champions"-- a Communist party policy known by the "Made in China 2025" label. These PRC-supported "national champions" of course lie in the very same strategic sectors that are central to U.S. 21st century competitiveness.
Respect is due the White House on how the China negotiations have been conducted - in stark contrast to the North Korean summitry.
- The president has delegated to the interagency, and to U.S. Trade Representative Robert Lighthizer in particular, clear authority to work the process; and he's been supported by a broad array of cabinet and sub-cabinet officials who have kept in near-continuous contact with their Chinese counterparts.
- Whatever one may think about the final outcome, the process of getting to a coordinated and consistent U.S. position is to be applauded; and the president (until last week) has largely kept his hands off!
But it's important to keep two key realities in mind as President Trump and Xi Jingping maneuver over the coming weeks:
- First, President Xi won't repeat the mistake of North Korean dictator Kim Jong Un: he's not meeting Trump in Mar-a-Lago (or anywhere else, for that matter) until the deal is wrapped up. Xi has no desire to be embarrassed by a Trump impulse, and he's taking no chances.
- Second, as one respected analyst of U.S.-China relations has privately observed, "China will be in violation on Day One of the deal's implementation!" It's why the enforcement provisions are so critical; and why the agreement, if consummated, may well represent the high-water mark of a U.S.-China relationship destined to get far colder and far more confrontational.
Best guess? There will be a trade deal and summit this spring, probably late April. A Trump impulse can of course change this quickly; but the tea leaves suggest an agreement.
- But make no mistake: as foreign policy author Robert Kaplan observed two months ago about the U.S.-China relationship for the 21st century, "The future has arrived, and it is nothing less than a new (economic) Cold War." Whatever Robert Lighthizer and his Chinese counterpart, Vice Premier Liu He, craft on trade over the coming weeks will not change that stark reality.
